World Trade Organisation
World Trade Organisation in Europe
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Description of World Trade Organisation (WTO)
The Concise Publication of the European Union describes world trade organisation (wto) in the following terms: [1] Background. The World Trade Organisation (WTO) was set up in Geneva in 1995 as the successor to the General Agreement on Tariffs and Trade (GATT), to add new dimensions of scope and political authority to the regulation of world trade (see more in this European publication). It is the accepted forum for the negotiation and settlement of trade problems between its member states, and is responsible for administering 29 multilateral agreements in areas as varied as textiles, agriculture, services and 'rules of origin'.
Over a period of nearly 50 years since World War II GATT had been successful in liberalising merchandise trade through a series of eight negotiating 'rounds'. In theory, however, GATT was merely an interim agreement with a secretariat, and the need had long been felt for a more substantial body. The growth of service industries, relating in particular to information technology, intellectual property and international investment, demanded more sophisticated rules; agriculture - a protectorate of Byzantine complexity both in the USA and in the EU - was overdue for reform; and international negotiations were becoming further complicated by concerns over food safety, the environment and exploitation of labour (see more in this European publication). Moreover, it was widely felt that the consensual GATTsystem of arbitration and dispute settlement, which had proved slow and ineffective, should be overhauled.
Unilateralism is the enemy and it is American. French prime minister Lionel Jospin, quoted in Le Figaro, 1999
The main diplomatic challenges facing the WTO are the ambitions of China and relations between the EU and the USA. In 1999 China, an emerging great trading nation that had sought membership since the WTO's inception, finally succeeded in overcoming US government objections. But the outcome was not yet certain. China's application needed the approval of Congress and the Eu (see more in this European publication). and doubts remained about the genuineness of its intent to act transparently and to comply with international rules. As for the EU and the USA, the two blocs have frequently been at loggerheads, with the EU becoming more assertive and the USA resorting increasingly to unilateral sanctions. Thus tentative proposals for an Atlantic free trade area, which seemed to many the logical outcome of half a century of liberalisation, have come to nothing (although the EU did reach a free trade agreement with Mexico in 1999). The disputes have ranged from EU tariff preferences for former colonies (the 'banana war') to European restrictions on the broadcasting of American TV programmes (the 'culture war') and US sanctions against European companies trading with countries deemed hostile by the USA. On occasion voices are even raised in the US Congress and in France calling for a reversal of the liberalisation of world trade, though the overwhelming evidence of the prosperity generated by free markets doubtless assures a continuance of current policies.
WTO principles and the growth of trade
The multilateral trading system is based on six principles: non-discrimination, progressive reduction of trade barriers, transparency, fair competition, special arrangements for developing countries and 'predictability' - the latter principle meaning that participating states should not increase tariffs or bypass the rules through quotas or other restrictions. This régime stands in sharp contrast to the pre-war cartels and protectionism that followed the stock market crash of 1929, reinforcing the slump and destabilising Western society. In the half century since the establishment of GATT in 1948, average duties on manufactured goods have fallen from over 40% to 3%; manufactured exports have grown more than 40-fold; and the share of world GDP represented by international trade has more than doubled to 22%. By the year 2000, the WTO's membership had reached 134, with a further 31 applicants, compared with the 23 original signatories of GATT.
The GATT Uruguay Round
As the last pact entered into before the formation of the WTO, the Final Act of the Uruguay Round represents the current regimen for the governance of world trade (see more in this European publication). Negotiations started in 1986. The driving force was the USA's desire to bring services into the GATT framework and to anchor the European Community (which had recently passed the Single European Act) into a liberal global trade system. In particular, the USA wanted to free agriculture of subsidies - to the point of being willing to cripple Europe's unpopular Common Agricultural Policy. Eight years later, in 1994, after France had brought the negotiations close to collapse, the Final Act was signed - a comprehensive series of agreements covering services, public procurement, intellectual property, tariff cuts on manufactured goods, a modicum of agricultural reform and the removal of various non-tariff barriers to trade (see more in this European publication). The Act also established the WTO to implement these agreements.
Administration and dispute resolution
The supreme decision-making body of the WTO is the Ministerial Conference, which consists of all the member countries and meets at least once every two years. The General Council is effectively a board committee of the Conference, meeting as and when needed and also serving as the Dispute Settlement Body. With a budget of under $100 million and a secretariat of 500, the WTO is one of the world's most cost-effective international institutions.
In international law, WTO agreements have the status of treaties. In the GATTera, it proved easy to block the settlement of disputes, whether at the stage when a panel of experts was formed to evaluate a case or when their report was to be adopted by the Council. The resultant delays encouraged the USA to resort to unilateral measures. The WTO has brought in a revised procedure, which aims at mediated solutions but speeds up the panel system if a dispute cannot be resolved voluntarily. There is also a new international appeal body, and ultimate recourse to the General Council. The penalty for breaching the rules is a retaliatory sanction equal to the value of the trade impaired.
In practice, there have been less than 20 disputes a year requiring the formation of a panel. Some $300 million of sanctions have been authorised - all in favour of the USA - but to put this figure in perspective, it is less than 0.005% of annual global trade of nearly $7 trillion.
The WTO and the EU
Trade within the EU is a permitted exception to the general WTO principle of non-discrimination. The Community qualifies as a 'regional trade agreement', being substantially barrier-free internally and not having raised its barriers against the outside world.
Although all the member states of the EU are WTO members in their own right, they are required to cede control of their external trade policy upon accessionto the Community. Accordingly, in any negotiation the Commission acts on behalf of the EU (with qualified majority voting in the Council of Ministers, so that no member state has a veto). This rule, however, failed its most severe test in 1993 during the Uruguay Round, when France effectively overturned an agreement on agriculture hammered out by the Commission and the USA. France's tactic was to threaten the nuclear option of vetoing the entire Final Act on the grounds of 'vital national interest' - a move of uncertain validity in terms of Community law, and one which relied on a principle rarely invoked since the days of Charles de Gaulle (see more in this European publication). Brinkmanship led to a last-minute compromise, but the episode created extreme ill-feeling, not only in the USA but also within the EU, where it highlighted the division between the protectionists and the liberalisers, the latter led by the UK and including Denmark, Germany and The Netherlands. Tension ran so high within the Commission that Ray MacSharry, the Agriculture Commissioner, tendered his resignation.
The question then arose whether it was the member states or the Commissionthat had legal power to sign the agreements contained in the Final Act. The member states claimed that the Act was subject to 'dual competence' and that under the Treaty of Rome the Commission had exclusive competence only for merchandise trade (see more in this European publication). The Commission disagreed and sought a ruling from the Court of Justice, which determined that the Commission had exclusive powers with respect to most trade matters, but that it shared responsibility with the member states with respect to certain services. In practical terms EU trade policy is formed by a dialogue between the Commission and the Council of Ministers, in which the Council sets the negotiating parameters and the Commission undertakes the actual negotiations, working with representatives of the member states.
The Seattle Conference
The Seattle Conference of 1999 was intended to launch the WTO with a new round of trade negotiations. The conference soon fell into chaos amid rowdy street demonstrations. The 'green' movement directed much of its wrath against multinational corporations, which were accused of having undue influence over the WTO and being neglectful both of poorer nations' needs and of consumer safety - a dispute over the risks of genetically modified food being but the latest of many such controversies. Free marketeers and developmenteconomists found themselves in an unusual alliance (see more in this European publication). Both were dismayed that demagogues from the advanced countries were pandering to lobby groups by posturing about environmental risks and employment conditions in the third world, when their real aim was to protect their industries against low-cost competition. (Many of the environmental concerns were genuine, but this seemed a hypocritical way to address them.) All in all, the high political profile brought about by the transformation of GATT into the WTO backfired and the conference ended in stalemate (see more in this European publication). The real tests, however, are yet to come (see more in this European publication). When the forthcoming round finally gets under way it will be judged by the success or failure of agricultural reform and the liberalisation of services as well as by the effectiveness of the new dispute resolution procedures.
World Trade Organisation and the European Union
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WTO
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Based on the book "A Concise Publication of the European Union from Aachen to Zollverein", by Rodney Leach
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