The Changing Role of the World Trade Organization


In late May the Ways and Means Committee of the U.S. House of Representatives by voice vote adversely reported out a joint resolution withdrawing the approval of the U.S. Congress for the agreement that established the World Trade Organization. This was part of a procedure that occurs every five years under legislation that approved the creation of the World Trade Organization (WTO). While the entire House is expected to also reject the joint resolution when it reaches the floor, the vote will not mean that there are no concerns about how the WTO operates.

A statement by Representative Bill Thomas, Chairman of the Committee, reflects the views of many people, “We are all in support of the WTO, but we all have concerns and reservations.” The WTO is the one international venue available to deal with multilateral trade issues. The alternatives are to pursue protectionist policies or unilateral free trade. Protectionism would lead to lower standards of living for everyone. A unilateral move toward free trade would result in higher standards of living, but cause discomforts for industries that are protected from market forces by current trade policies.

One of Chairman Thomas’ concerns is the unanimous consent needed to approve new trade agreements. If the current Doha Round of negotiations is to result in a new agreement, all 148 members of the WTO will have to agree with the final product. That means developed countries like the U.S. and EU must agree as well as least developed like Rwanda and Haiti. When the General Agreement on Tariffs and Trade (GATT), the predecessor of the WTO, was created in 1947 it involved 23 countries. When the Uruguay Round resulted in the created of the WTO in 1994, 123 countries were involved. This round of negotiations is the first since China joined in 2001.

Finding consensus in this diverse group may be difficult, but there are few options available for governance. The United Nations has a split process with a Security Council with some permanent members and some elected and a General Assembly of all members. Moving to that type of governing structure would likely be hard to do because it would change the balance of power. For now, the governance structure is not likely to change.

Even more important than how the WTO is governed is what it actually does. Its roles fall into two general categories. Its original function was to provide a forum for discussions to lower tariff and non-tariff barriers to trade. There have been six “rounds” of trade negotiations, including the current Doha Round, since the old GATT was formed in 1947. The Uruguay Round completed in 1994 was the first to include substantive changes in agricultural tariffs and trade distorting subsidies.

With almost 60 years of trade agreements, the WTO is being transformed into a trade dispute adjudicator. While there was a dispute resolution process under the GATT, the Uruguay Round agreement established a more formal process for handling them. In the last 10 years over 300 dispute cases have been filed with the WTO compared to 300 for the entire 1947-1994 period.

Despite the more formal dispute process, the WTO remains a voluntary organization. The only penalty the WTO can impose on a member is to allow the winning party to impose tariffs on the losing party equal to the amount of damages the WTO estimates is caused by the offending country’s policies if it does not change its policies. For example, the WTO has tentatively authorized Canada to impose $319 million of tariffs per year on U.S. products for the failure of the U.S. to remove tariffs on imported Canadian softwood lumber after the U.S. lost a case brought by Canada to the WTO.

Many members of the U.S. House and Senate and U.S. businesses are quick to advocate that the U.S. government file WTO cases against other countries. The more cases the U.S. files the more likely other countries will do the same. WTO ruling are not required to make economic sense, and rulings become precedents for other cases in the future.

Dispute resolution is becoming even more difficult with the rise of plant and animal health and food safety as major non-tariff barrier issues. The WTO has generally relied on international organizations like the OIE (Office of International Epizootics) to deal with technical issues. That approach has been complicated by the willing of courts to intervene in government decision-making processes. The U.S. federal court intervening in the BSE regulations on beef from Canada and an Australian judge banning the imports of U.S. and Canadian pork because of animal health issues are forerunners of things to come for the WTO.

Dispute resolution is absolutely essential because reasonable and unreasonable differences of opinion will exist on interpretation of trade rules, but it cannot be allowed to drive the WTO governing process. To prevent this from occurring, three things have to happen.

First, agreements have to stick to the basics of tariff reductions and non-tariff rules based on clear standards. Agreements cannot be left vague for WTO judges and lawyers to debate their meaning.

Second, the movement toward freer trade resulting from new agreements has to be beneficial enough so that countries and industries will have a stake in seeing that the integrity of the WTO is maintained. Few people will expend large amounts of political and economic capital for only marginal changes.

Third, countries have to show self restraint in bringing disputes to the WTO. Just because a case can be filed does not mean that it should be filed. If the focus of the WTO becomes mostly dispute resolution cases that lead to more disputes, it is doomed.

The ultimate goal of the WTO must be to broaden the economic benefits of freer trade, not to have endless disputes over the subtle shades of gray of managed trade.

Ross Korves

Ross Korves

Ross Korves served Truth about Trade & Technology, before it became Global Farmer Network, from 2004 – 2015 as the Economic and Trade Policy Analyst.

Researching and analyzing economic issues important to agricultural producers, Ross provided an intimate understanding regarding the interface of economic policy analysis and the political process.

Mr. Korves served the American Farm Bureau Federation as an Economist from 1980-2004. He served as Chief Economist from April 2001 through September 2003 and held the title of Senior Economist from September 2003 through August 2004.

Born and raised on a southern Illinois hog farm and educated at Southern Illinois University, Ross holds a Masters Degree in Agribusiness Economics. His studies and research expanded internationally through his work in Germany as a 1984 McCloy Agricultural Fellow and study travel to Japan in 1982, Zambia and Kenya in 1985 and Germany in 1987.

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