This booklet tries to reflect the complex and dynamic nature of trade and the WTO’s trade rules. It highlights the benefits of the trading system, but it doesn’t claim that everything is perfect. Were it a perfect system, there would be no need for further negotiations and for the system to evolve and reform continually.
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2. The world is complex. The World Trade Organization is complex. This booklet is brief, but it tries to reflect the complex and dynamic nature of trade and the WTO’s trade rules. It highlights benefits of the trading system, but it doesn’t claim that everything is perfect. Were it a perfect system, there would be no need for further negotiations and for the system to evolve and reform continually. Nor does this booklet claim that everyone agrees about everything in the WTO. That’s one of the most important reasons for having the system: it’s a forum for countries to thrash out their differences on trade issues. That said, there are a number of reasons why we’re better off with the system than without it. What’s the WTO’s view on …? The WTO is its members. With over 150 members, the WTO has over 150 views — probably more than that, too.
3. 10 things the WTO can do The WTO can ... page 1 … cut living costs and raise living standards 2 2 … settle disputes and reduce trade tensions 10 3 … stimulate economic growth and employment 14 4 … cut the cost of doing business internationally 20 5 … encourage good governance 26 6 … help countries develop 30 7 … give the weak a stronger voice 36 8 … support the environment and health 40 9 … contribute to peace and stability 46 10 … be effective without hitting the headlines 50
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5. We are all consumers. The prices we pay for our food and clothing, our necessities and luxuries, and everything else in between, are affected by trade policies. 3
6. The European Union, which, through the 1 ... cut living costs creation of its single market undertook the third major liberalization at the turn of the century, and raise living says the gains from the wider variety of goods and services available to the average European standards consumer are in the range of €600 a year, in addition to the gains from lower prices. Food is cheaper if protection is reduced. When you protect your agriculture, food is artificially expensive. When protection is particularly high — as when market prices are naturally low — the impact can be huge. Protectionism is expensive: it raises prices. The WTO’s global system lowers trade barriers Protecting agriculture raised food prices by through negotiation and operates under the an estimated $1,500 per year for a family of principle of non-discrimination. four in the European Union in 1997 and by the equivalent of a 51% tax on food in Japan The result is reduced costs of production (1995). In just one year (1988), US consumers (because imports used in production are had $3 billion added to their grocery bills just cheaper), reduced prices of finished goods to support sugar. and services, more choice and ultimately a lower cost of living. But there is also a paradox. Protection and subsidies in rich markets raise prices Elsewhere, we look at the challenges that domestically but force down prices externally imports can present. Here the focus is on in world markets and particularly in poorer the impact on us, as consumers. countries. If reform in the developed world raises world prices, consumers in the poorer Overall incomes can rise. Trade opening countries may suffer, but their farmers receive since 1945 has boosted US annual incomes more realistic prices, encouraging them to by $1 trillion, or $9,000 per household, produce more and improving supplies within according to the US government . Two major the country. trade agreements of the 1990s — the WTO Uruguay Round and the North American Free Negotiating agricultural trade reform is Trade Agreement between the US, Canada, therefore a complex undertaking. Governments and Mexico — generate increased purchasing are still debating the roles agricultural policies power of $1,300 to $2,000 per year for the play in a range of issues from food security to average American family of four, it says. environmental protection. But WTO members are now reducing the subsidies and the trade barriers that are the worst offenders. And they are negotiating to continue the reform in agriculture.
7. These issues have now been incorporated into a broader work programme, the Doha Development Agenda, launched at the fourth WTO Ministerial Conference in Doha, Qatar, in November 2001. Clothes are cheaper. Like agriculture, trade in garments and textiles has been reformed Protecting agriculture raised food although some protection remains. At times prices by an estimated $1,500 per of peak protection, the costs to consumers year for a family of four in the were high. European Union in 1997 In the US, import restrictions and high customs duties combined to raise US textiles and clothing prices by 58% in the late 1980s 2012 during the early years of the negotiations that produced global reform — the Uruguay Round 1945 talks that created the WTO. UK consumers paid an estimated £500 million more per year for their clothing because of these restrictions. For Canadians, the bill was around C$780 million. For Australians, it would have been A$300 annually per average family Trade opening since 1945 has if Australian customs duties had not been boosted US annual incomes by reduced in this period. $9,000 per household Reform of the textiles and clothing trade under the WTO was completed in 2005. The programme included eliminating restrictions on quantities of imports. Before tax After tax Even now, the import duties on cheaper essential products can be a disproportionate burden on the neediest. $ 2 1 0 0 0 $ 3 0 0 0 0 If customs duties on textiles and clothing were also to be eliminated, economists calculated that the result could be a gain to the world of around $23 billion, including $12.3 billion for the US, $0.8 billion for Canada, $2.2 billion for the EU and around $8 billion In the Republic of Korea, for developing countries. protectionism in the car industry adds around 43% to the cost of an imported car 5
8. The same goes for other goods … More broadly, according to ITU data, regions For example, it is estimated that at their peak that have liberalized telecoms more slowly and in the early 1980s, quotas on cars imported less fully — the Middle East and Africa — show into the US were transferring $5 billion a year higher average price levels than regions such in additional profits to Japanese car makers as Europe, the Americas and Asia, which (and additional costs to consumers), who could embraced reform earlier. sell their quota-limited cars at a premium. And businesses as well as citizens benefit. Despite this protection, the US car industry Price reductions and affordability resulting continued to lose market share. Foreign from market opening around the world mean producers simply jumped over the trade barrier that telecoms services reach more small and and began manufacturing cars in the US. medium-sized enterprises too. Many other countries have also protected their car industries. In the Republic of Korea, for example, the combination of an 8% tariff and taxes on engine size add about $9,000 to the price tag of a $30,000 imported car. … and services. In Africa, Tanzania, Uganda and Mozambique were among the countries with the highest price drops for telephone, Internet and other forms of communications services in 2008-10. So were Bhutan and Bangladesh in Asia, according to calculations by the International Telecommunications Union (ITU). Recent market opening in least-developed countries is beginning to show dividends. From 2008 to 2010, Internet broadband prices in developing countries (as a proportion of gross domestic product or GDP) declined much more rapidly, by 52%, than in rich countries, at 35%. Today, hardly any countries still allow Internet services to be provided under monopoly rights.
9. Tariffs often hurt the poor. According to And so it goes on. The system now entrusted studies in the United States, higher tariffs to the WTO has been in place for over 60 years. are charged on a number of products that are bought by lower-income sections of the In that time, there have been eight major rounds population. These include sports shoes, of trade negotiations. Trade barriers around underwear, T-shirts and much more — meaning the world are lower than they have ever been these consumers pay tariff rates five to ten in modern trading history. They continue to fall, times higher than middle-class or rich families and we are all benefiting. pay in upmarket shops. Poorer exporting countries, such as Cambodia and Bangladesh, are also hurt: they face tariffs 15 times higher than those applied to wealthy nations and oil exporters. According to critics of agricultural protectionism, consumers and governments in rich countries have paid $350 billion per year supporting agriculture — enough to fly their 41 million dairy cows first class around the world one and a half times. 7
10. Differing points of view: food security Food security is the elephant in the room which the WTO must address. Trade did not feed the hungry when food was cheap and abundant, and is even less able to do so now that prices are sky-high. Global food imports shall be worth $1.3 trillion in 2011, and the food import bills of the least developed countries have soared by over a third over the last year. The G-20 has acknowledged that excessive reliance on food imports has left people in developing countries increasingly vulnerable to price shocks and food shortages. The WTO must now do the same. — Olivier De Schutter, Special Rapporteur on the Right to Food, “Food security hostage to trade in WTO negotiations – UN right to food expert”, Office of the UN High Commissioner for Human Rights website, 16 November 2011 First, trade isn’t – and never was – a silver bullet. Not for food security or really any other purpose. Trade offers important advantages, and when it works well, it reduces costs, improves consumer options, and assists in managing risks. But over-reliance on trade – either as importers or exporters – has real economic and food security risks. — Gawain Kripke, Oxfam America Director of Policy and Research, “Finding some focus: Trade and food security, the politics of poverty”, Oxfam America website, 6 June 2012
11. I fundamentally disagree with your assertion that countries need to limit reliance on international trade to achieve food security objectives. On the contrary, there is agreement among most UN-led experts that international trade is part of the package of solutions to achieve food security. The UN High Level Task Force on the Global Food Security […] noted that ‘more liberalized international markets would contribute to global food and nutrition security through increased trade volumes and access to diverse sources of food imports.’ […] The Inter-agency report for the G-20 stated, for example, that ‘trade is an essential component of any food security strategy’ and that ‘policies that distort production and trade in agricultural commodities potentially impede the achievement of long run food security’. […] Indeed, our members negotiate towards a more level playing field in agriculture in order to enhance their ability to achieve food security. — Pascal Lamy, WTO Director-General, letter to Olivier De Schutter, 14 December 2011 9
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13. More trade, more traded goods and services and more trading countries — they bring benefits but they can also increase the potential for friction. The WTO’s system deals with these in two ways. One is by talking: countries negotiate rules that are acceptable to all. The other is by settling disputes about whether countries are playing by those agreed rules. 11
14. Well over 400 disputes have been brought to the 2 ... settle disputes WTO since it was set up in 1995. Without a means of tackling these constructively and harmoniously, and reduce trade some could have spiralled into more serious political conflict. tensions The fact that the disputes are based on WTO agreements means that there is a clear basis for judging who is right or wrong. Once the judgement has been made, the agreements provide the focus for any further actions that need to be taken. The increasing number of disputes brought to Closer relationships have huge benefits but the WTO does not reflect increasing tension in they can also bring friction: more trade increases the world. Rather, it reflects the closer economic the possibility of disputes. In the past, such ties throughout the world, the WTO’s expanding disputes have erupted into serious conflict. membership and the fact that countries have faith But today, international trade tension is reduced in the system to solve their differences. because countries can turn to organizations, in particular the WTO, to settle their trade disputes. Sometimes the exchanges between the countries in conflict can be acrimonious, but they always aim Before World War II, there was no forum for to conform to the agreements and commitments global trade negotiations, and no legal procedure that they themselves negotiated. for settling disputes. After the war, the world’s community of trading nations negotiated trade rules which OVE 400 R are now entrusted to the WTO. Settling ... were brought to the WTO their differences by talking and by agreeing DISP from 1995 to 2011. on rules is vital for reducing tension. UTE S... Less than half resulted in the establishment of dispute panels. Those rules also include an obligation for A large number were resolved members to bring their disputes to the WTO through discussions between and not to act unilaterally. the parties and never reached the panel stage. Dispute settlement is sometimes described as the jewel in the WTO’s crown. It’s the central More than 90% of rulings pillar of the multilateral trading system, and the have been complied with by the WTO’s unique contribution to the stability of the responding countries, less than global economy. 4% resulted in sanctions by the complaining countries. WTO dispute settlement focuses countries’ The average time taken in panel attention on the rules. Once a verdict has been proceedings is 10 months. announced, countries concentrate on complying In other international organizations with the rules, and perhaps later renegotiating or even national courts, the time them — rather than declaring war on each other. taken can be two to five years.
15. Developing countries are more active in WTO disputes The annual number of disputes has declined overall. Developing countries are active, reflecting their increasing participation in trade. However, their share of disputes — either in initiating complaints or being complained against — has fluctuated over the years. Complaints by developing / developed countries Annual number of cases 19 10 By developing countries By developed countries 5 23 40 36 18 10 32 14 16 24 17 19 19 7 10 10 11 14 6 7 12 7 10 10 9 7 7 7 6 4 5 3 20 20 20 20 20 20 20 20 20 20 19 19 19 19 19 20 20 9 9 9 9 97 00 03 04 08 05 06 09 02 10 07 01 11 8 9 5 6 Complaints against developing / developed countries Annual number of cases 21 Against developing countries Against developed countries 10 20 8 20 31 13 29 29 6 10 12 19 19 6 9 17 16 14 9 11 13 7 11 11 6 7 10 3 5 7 7 6 4 20 20 20 20 20 20 20 20 20 20 19 19 19 19 19 20 20 9 9 9 9 97 00 03 04 08 05 06 09 02 10 07 01 11 5 6 8 9 Sources: WTO dispute settlement data; Raúl A. Torres, “Use of the WTO Trade Dispute Settlement Mechanism by the Latin American Countries — dispelling myths and breaking down barriers”, WTO Staff Working Paper ERSD-2012-03, February 2012. 13
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17. The relationship between trade and jobs is complex. It is true that trade can create jobs, but it is equally true that competition from imports can put producers under pressure and lead them to lay off workers. The impact of competition from foreign producers varies across firms in a sector, across sectors of the economy as well as across countries. So does the impact of new trade 15
18. have access to a wider range of high-quality, 3 ... stimulate affordable inputs. They also have access to technology and know-how they could not obtain economic growth in a closed economy. Access to technology and quality inputs can boost innovation and and employment creativity in the workplace. Moreover, competition in the marketplace can be a powerful stimulus to companies seeking new ways of making things better and more cheaply. An infusion of new ideas from other countries can make companies more productive. So can enhanced access to export Achieving higher living standards, full markets. But doing things more productively employment and sustainable development often means doing more with less and that is the aim of the WTO’s member governments, can mean using fewer workers. Inevitably, this as expressed in the WTO’s founding Marrakesh means that some workers in some industries Agreement. The means for achieving this will lose their jobs. include the “substantial reduction of tariffs and other obstacles to trade”. This is part of what economists call “churn” and what the Austrian-American This process of trade opening takes place in economist Joseph Schumpeter termed “creative the framework of WTO rules, which take into destruction”. It has been part of economic life account the fact that some countries are better for centuries and it can bring pain. But history equipped than others to open their markets tells us that countries seeking to block incoming widely. Some countries, for instance, have a goods, services or ideas often find their more advanced legal, regulatory and physical economies stagnating. infrastructure than others. Generally speaking, it is easier for developed countries to open their It is important to acknowledge that while markets than for many developing countries. trade holds real benefits for most people, As a result, average tariffs (import duties) in most of the time — consumers as well as developed countries, at least for manufactured producers — there are people who are hurt by goods, are much lower than in developing trade. Recognizing that trade can be a threat countries — although this is not true in every is important socially and politically. Workers case or for every product. who have lost their jobs need support and polls strongly suggest that people are far more likely Open economies tend to grow faster and to favour trade opening if they know that such more steadily than closed economies and support will be available. economic growth is an important factor in job creation. Profitable companies tend to hire This is why governments need to maintain more workers than those posting a loss. Trade effective social programmes that can protect can also be a catalyst for greater efficiency workers who lose their jobs through trade and productivity. This is because companies and help train them to find new jobs.
19. Imports are no longer linked to job losses The chart below suggests that imports and the jobless rate might have been linked from 1970 to 1990. But since 1990, these lines have diverged sharply and 20 years later any linkage between the two has faded Import penetration (% of GDP) Unemployment rate 1970 1980 1990 2000 2010 The 23 countries are Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany and West Germany (until 1991), Iceland, Italy, Japan, Korea, Luxembourg, Netherlands, New Zealand, Norway, Portugal, Spain, Sweden, Switzerland, Turkey, UK, US. Source: Newfarmer, R. and Sztajerowska M. (2012), “Trade and Employment in a Fast-Changing World”, in OECD (2012), Policy Priorities for International Trade and Jobs, Douglas Lippoldt (ed.), OECD, Paris 17
20. But if the link between trade and jobs is In the information and communications complex, one thing is straightforward: technology sector, developing countries such protectionism does not protect jobs, or does as Malaysia, Mauritius and Egypt have benefited so at a very high cost which can adversely enormously from opening their markets, achieving impact employment elsewhere in an economy. high levels of employment in this area. Developed This is particularly true today in our ever more countries such as Finland, Sweden and Ireland interconnected global economy. have followed a similar approach, leading to economic growth and new job opportunities. The proliferation of global value chains means that production and sourcing now take place While trade can put some jobs under across many frontiers. Products are rarely made threat, most economists believe technological in a single country but rather are assembled advances contribute far more than trade to job using parts and services from many countries. loss, particularly for low-skill jobs. When the automobile was invented, it was bad news for Participation in these chains would be seriously blacksmiths and horse breeders. The electric undermined if the goods and services needed light was problematic for candle makers. But to make these products were rendered more of course these innovations created millions expensive or harder to find. of jobs in the automobile and lighting sectors. Moreover, there are many jobs in all countries The OECD has charted the impact of imports that are directly related to imports, particularly on the jobless rate in 23 countries. While in industries like retail, shipping, express the correlation between the rate of import delivery and logistics. The adage that exports penetration and unemployment may have are good and imports are bad has always been suggested a linkage between the two during a dubious one and today this is more clear-cut the period 1970-90, the last 20 years have than ever before. been a different story. Beginning in 1990, these lines diverged sharply and today any linkage between the two has faded. Governments need to maintain effective social programmes to protect workers who lose their jobs.
21. +34% 1975 Average Today In Sub-Saharan Africa, those working in export-oriented In 1975, 60% of the people in Asia companies collect a 34% wage lived in absolute poverty. Today, premium over the average wage. that number is less than 20%. Jobs that are tied to trade tend to pay better As we said at the beginning, the relationship than those that are not. In Western Europe, between trade and employment is complex and those working in export-oriented companies the impact of trade on employment cannot be collect a 10%-20% wage premium over assessed in a vacuum. Many other factors are the average wage. In the United States, the tied to sustainable job creation. In some cases, premium is 6% and in Sub-Saharan Africa rapid opening of trade may be the wrong policy. the figure is 34%. Without adequate physical, institutional and legal infrastructure, the benefits of more open Overall, wages in economies that are open are trade can be lost. higher than in closed economies. Workers in the manufacturing sector in open economies And yet greater openness has helped many earn three to nine times more than those in countries in reducing poverty. In Asia today, closed economies. less than 20% of the people live in absolute poverty. In 1975, it was 60%. In Africa today, But as with most things, the picture is neither for the first time, fewer than half the people live all black nor all white. Trade promotes greater in such poverty. Trade has been an important productivity, and higher productivity leads to component in the development and poverty larger salaries. But there is also strong evidence alleviation in both regions. suggesting that wages in some sectors in advanced countries are suppressed when those Trade is an important tool and we know that sectors are exposed to competition from lower- without it, growth, job creation and development wage countries. There is research that shows, are more difficult to attain. But trade is not as well, that in some cases trade can contribute a panacea. to greater income inequality in some sectors. 19
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23. Many of the benefits of the trading system are more difficult to summarize in numbers, but they are still They are the result of essential principles at the heart of the system, and they make life simpler for the enterprises directly involved in trade and for the producers of goods and services. 21
24. or locally produced. Life for the company would 4 ... cut the cost be much simpler. Sourcing components would become more efficient and cost less. of doing business Non-discrimination is just one of the internationally key principles of the WTO’s trading system. Others include: –– transparency (clear information about policies, rules and regulations) –– increased certainty about trading conditions (commitments to lower trade barriers and to increase other countries’ access to one’s Trade allows a division of labour between markets are legally binding) countries. It allows resources to be used more –– simplification and standardization of customs efficiently and effectively for production. But the procedure, removal of red tape, centralized WTO’s trading system offers more than that. databases of information, and other measures It helps to increase productivity and to cut costs to simplify trade, known as “trade facilitation”. even more because of important principles enshrined in the system, designed to make life Together, they make trading simpler, cutting simpler and clearer. companies’ costs. That, in turn, means more jobs and better goods and services for consumers. Imagine a situation where each country sets different rules and different customs duty “Trade facilitation” has become an important rates for imports coming from different trading subject in the Doha Round negotiations. Red partners. Imagine that a company in one country tape and other obstacles are like a tax on trade. wants to import raw materials or components — The saving from streamlining procedures could copper for wiring or touchscreens for electronic be 2%–15% of the value of the goods traded, equipment, for example — for its own production. according to estimates by the Organisation for Economic Cooperation and Development (OECD). It would not be enough for this company to look The Peterson Institute for International Economics at the prices offered by suppliers around the estimates that it could add $117.8 billion to the world world. The company would also have to make economy (global GDP). The World Bank says that separate calculations about the different duty for every dollar of assistance provided to support rates it would be charged on the imports (which trade facilitation reform in developing countries, would depend on where the imports came from), there is a return of up to $70 in economic benefits. and it would have to study each of the regulations that apply to products from each country. Buying Africa is already seeing major improvements. copper or touchscreens would become very For example, under an investment project in the complicated. That, in simple terms, is one of the East African Community, delays at border crossings problems of discrimination. have been slashed from three days to three hours, allowing goods to move much faster between Imagine now that the government announces Mombasa port and neighbouring countries. it will charge the same duty rates on imports It’s no surprise that some business leaders have from all countries, and will use the same even said they consider trade facilitation to be the regulations for all products, whether imported top priority in the Doha Round.
25. Streamlining trade –– Reducing the costs of cross- border trade –– Simplification –– Standardization of customs of customs clearance procedure –– Less –– Removal of paperwork red tape –– Centralized databases of information 23
26. ‘Made in … where?’ The Boeing Dreamliner aircraft may be made in America, but with essential imports sourced from so many other places that it’s difficult to know where to begin. Surveillance Automated System Processor passenger doors from Canada from France Engine exhaust nozzle from Mexico Rolls-Royce Trent engine from UK and France There’s the Integrated Surveillance System And there’s a turbine engine exhaust nozzle, Processor and an Integrated Navigation Radio, brought in from Mexico from titanium sheets from Canada. made in China. Those are just the first three telling examples that show up from a glance There’s also a Valve Control Unit from Germany through US Customs records – with each – passengers can thank that for keeping their import necessary to the American workers cabin air pressure within tolerable limits. in places like Everton.
27. Integrated Navigation Radio Horizontal stabilizers from Canada. from Italy Titanium sheets from China Mitsubishi Heavy Industries’ wing from Japan That doesn’t even get to the big-ticket items: The Dreamliner is as cosmopolitan as the the Rolls-Royce Trent 1000 engine, the American people. Boeing’s American workers testing in wind tunnels in the UK and France; should love imports, because their jobs depend the Mitsubishi Heavy Industries’ wing; Italian upon them. horizontal stabilizers, doors from France, and other critical components from Sweden, India, Source: Greg Rushford, “Made in America?”, 21 February South Korea – it’s a very long list. 2012, Rushford Report, www.rushfordreport.com 25
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29. Transparency — shared information and knowledge — levels the playing field. Rules reduce arbitrariness and for corruption. They also shield governments from lobbying by narrow 27
30. protection, the government can deflect the 5 ... encourage good pressure by arguing it needs a broad-ranging agreement that will benefit all sectors of the governance economy. Governments do just that, regularly. The rules include commitments not to backslide into unwise policies. Protectionism in general is unwise because of the damage it causes domestically and internationally. Particular types of trade barriers cause additional damage because they provide opportunities for corruption and other forms Governments need to be armed against of bad government. pressure from narrow interest groups, and the WTO system can help. One kind of trade barrier that the WTO’s rules try to tackle is the quota — for example, Historically, protectionism has taught us about restricting imports or exports to no more than the damage that can be caused if narrow a specific volume each year. sectoral interests gain a disproportionate share of political influence. Restrictive policies Because quotas limit supply, they artificially turned into trade wars, which no one won and raise prices, creating abnormally large profits for everyone lost. companies selling inside this quota (economists talk about “quota rent”). Such circumstances The WTO system helps governments take a create serious market distortions and these more balanced view of trade policy. They are extra profits can be used to influence policies better-placed to defend themselves against because more money is available for lobbying. lobbying from narrow interest groups by These conditions can also provide opportunities focusing on trade-offs that are made in the for corruption — for example, in the allocation interests of everyone in the economy. of quotas among traders. That is unfortunately all too common around the world. Restricting imports can look like an effective way of supporting an economic sector. In other words, quotas are a particularly bad But it biases the economy against other sectors way of restricting trade. Governments have which shouldn’t be penalized — for example, agreed through the WTO’s rules that their if you protect your agriculture, everyone else use should be discouraged. has to pay for more expensive food, which puts pressure on wages in all sectors. Nevertheless, quotas of various types remain in use in most countries, and governments The WTO system covers a wide range of argue strongly that they are needed. But they sectors. If, during a negotiation, one pressure are controlled by WTO agreements and there group lobbies its government and pleads to are commitments to reduce or eliminate be considered as a special case needing many of them.
31. Many other areas of the WTO’s agreements products, and non-discrimination also help can also help reduce corruption and bad by reducing the scope for arbitrary decision- government. making and cheating. One that has a direct impact via the public Quite often, governments use the WTO as a sector is the Government Procurement welcome external constraint on their policies: Agreement. This disciplines how participating “We can’t do this because it would violate the governments make their purchases, and opens WTO agreements.” major parts of the procurement markets to foreign competition. In December 2011, a new Internationally, the WTO is working closely deal worth an estimated $80–100 billion per with other international agencies to improve year was struck under the agreement, the way global issues are tackled. Around 140 improving the disciplines and expanding intergovernmental organizations are observers access to these markets. in WTO committees and councils. The WTO is formally an observer in several agencies. The Transparency (such as making available to the WTO Secretariat works with almost 200 of public all information on trade regulations, them in activities such as statistics, research, fees and required paperwork), greater harmony standard-setting, and technical assistance and between countries on other aspects of “trade training. The extent of the cooperation varies, facilitation”, clearer criteria for regulations and it continues to evolve so as to help member dealing with the safety and standards of governments with their economic policies. WTO agreements can help to reduce corruption and bad government. 29
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33. Underlying the WTO’s trading system is the fact that more open trade can boost economic growth and help countries develop. In that sense, commerce and development are good for each other. In addition, the WTO agreements are full of provisions that take into account the interests of developing countries. 31
34. 6 ... help countries Over three-quarters of WTO members are developing or least-developed countries. All of those in the queue to join are likewise developing countries. Whether the interests of developing countries are well enough served in the WTO is a subject of continuing debate. But even the most critical developing countries acknowledge that the system offers them benefits. In fact, few economists dispute that properly handled, trade is essential for development. All WTO agreements contain special provisions for developing countries, including longer periods to implement agreements and commitments, measures to increase their trading opportunities and support to help them build the infrastructure for WTO work, handle disputes, and implement technical standards. Least- developed countries receive special treatment, including exemption from many provisions. The needs of developing countries can also be used to justify actions that might not normally be allowed under the agreements – for example, governments giving certain subsidies. And the negotiations and other work launched at the Doha Ministerial Conference in November 75% of WTO members 2001 include numerous issues that developing are developing countries want to pursue. countries.
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36. The WTO only cares about trade Well, it is the World Trade Organization “But what about poverty and the “What about them?” “What’s the WTO doing to help the poor and protect the environment? The way I see it, trade makes the rich richer, and the poor “And what about WTO patent rules that poorer. And even worse, the WTO actually allow big pharmaceutical companies to earn allows rich countries to pay huge subsidies huge profits by making their medicines so to their farmers. So cheap tomatoes and expensive the poor can never buy them? wheat flood developing countries’ markets and put local farmers out of business.” “There’s plenty of room in the WTO rules on patents for governments to get medicines to “But that’s what the WTO is trying to stop. the poor. But there are lots of other obstacles If it were allowed to do its job properly, to overcome too. And we need incentives so trade would help the poor to be fed. It that new medicines are invented.” would even fill in the gaps when there are local shortages. It would help poor farmers “I’m still not convinced.” produce and sell more without having to compete with cheap subsidized produce. “Well, just imagine what it would be like And the WTO is actually cutting those with no world trade. How would developing subsidies gradually.Without the WTO they countries get the food they need when they could be much higher.” are hit by drought or floods? Like it or not, the world depends on trade and the WTO’s job is to make the rules as fair as possible for everyone.”
37. Finally, although the WTO is not an aid Both donor and recipient countries have agency, it does have a role to play, particularly responded to these efforts. Donor countries as a forum and clearing house for information have committed an average of $40 billion a on trade-related development aid. year to trade-related development programmes while recipient countries have had success Aid for Trade. The debate over whether in pinpointing the specific areas where aid is developing countries need aid or trade is needed and in mainstreaming trade into their at an end. development strategies. Today, there is widespread recognition that Better communications. The WTO has developing countries need both. But WTO set up reference centres in over 100 trade agreements do not guarantee increased ministries and regional organizations in trade flows: they provide opportunities. capitals of developing and least-developed Some countries are better placed than others countries, providing computers and internet to grasp those opportunities. Some need help: access to enable ministry officials to keep “Aid for Trade” and various other tools are abreast of events in the WTO in Geneva aimed at enhancing the capacity of developing through online access to the WTO’s immense countries to participate more effectively in the database of official documents and other global marketplace. material. Efforts are also being made to help countries that do not have permanent The WTO is the coordinating agency for representatives in Geneva. the “Aid for Trade” programme and as such regularly brings donors, development agencies, recipient governments and the private sector together. This dialogue helps to highlight what is being provided and what is needed while encouraging the development of more suitably designed projects. Aid Trade Developing countries need both aid and trade 35
38. The WTO can ...
39. Small countries would be weaker without the WTO. Differences in bargaining power are narrowed by agreed rules, consensus decision-making and coalition building. Coalitions give developing countries a stronger voice in negotiations. The resulting agreements mean that all countries, including the most powerful, have to play by the rules. The rule of law replaces might- 37
40. There wouldn’t be much point in a “multilateral” 7 ... give the weak trading system if that weren’t the case. a stronger voice One important point about the WTO is the practice of reaching decisions by consensus. Every country has to be convinced before agreement can be reached. Compromise is key: whatever is proposed has to be refined until it is acceptable to everyone or more precisely until it is objectionable to no one. Consensus means there are no dissenters. Another is the agreed rules. All countries, WTO geopolitics are evolving. In recent big or small, weak or powerful, have to follow years, developing countries have become broadly the same rules. There are exceptions, considerably more active in all areas of the delays or flexibilities for poorer countries, WTO’s work. They made sure development but they are still the same package of rules — would be at the heart of the Doha Round talks the flexibilities are just a way of allowing these and submitted an unprecedented number of poorer countries to play by the rules. proposals on agriculture and other subjects. The rules are the result of negotiations and They are active in all WTO councils and consensus decisions , and have been ratified committees. They have set up numerous in members’ parliaments. The negotiation that coalitions to increase their bargaining power, set up the WTO, the Uruguay Round (1986- particularly in negotiations. Some of these are 94), was only possible because of a bargain. developing country coalitions; some are mixed, Developed countries agreed to reform trade working on shared interests that cut across in textiles and agriculture — both issues were developed-developing country boundaries. important for developing countries. Until the mid-1990s, the “Quad” — the US, EU, Japan and Canada, then the largest traders — were seen as the most powerful consensus- brokers. Now, any attempt to break a major deadlock has to include at least some of the major emerging economies and representatives of various coalitions, including the least- developed countries.
41. Once the rules have been agreed, all countries And then there’s assistance are equal under them. That also applies to the dispute settlement system, which is similar to a Technical assistance and training. This is court. This century, except in a handful of years, an area where the WTO is actively involved in developing countries have filed complaints in aid. The WTO trains officials from developing at least half of all legal disputes, sometimes countries so that they can work more effectively considerably more. And their complaints in the system. That includes training on how are against both developed and developing to negotiate effectively within the rules. Each countries. Without the WTO, these smaller year, the WTO organizes around 100 seminars, countries would have been powerless to act workshops and other training sessions for these against their more powerful trading partners. officials. They also come to Geneva for longer trade policy courses. Legal advice. Not part of the WTO but associated with it is an Advisory Centre on WTO Law in Geneva. The centre gives low-cost legal advice and training on WTO law to developing The WTO trains officials countries, and supports them in WTO dispute from developing countries settlement proceedings at discounted rates. The centre enables these countries to fully so that they can work more understand their rights and obligations under effectively in the system. WTO law and to have an equal opportunity to defend their interests in WTO dispute settlement cases (www.acwl.ch). Academic institutions. A Chairs Programme set up by the WTO aims to help academic institutions in developing countries increase trade knowledge and contribute to the development of trade policy (see www.wto.org/chairprogramme). 39
42. The WTO can ...
43. An often-heard accusation is that the WTO system treats trade as the priority, at the expense of environmental and humanitarian objectives. This is untrue. 41
44. to stress that WTO members can, should and do 8 ... support the take measures to protect endangered species and to protect the environment in other ways. environment and The importance of these concerns is health enshrined in the rules. The Marrakesh Agreement Establishing the WTO includes among its objectives optimal use of the world’s resources, sustainable development and environmental protection. “The Parties to this Agreement [recognize] that Trade is nothing more than a means to their relations in the field of trade and economic an end. It could never be more important than endeavour should be conducted with a view protecting the environment or raising the quality to raising standards of living, ensuring full of life. What WTO agreements do is to try to employment and a large and steadily growing make trade support the things we really want, volume of real income and effective demand, and including a clean and safe environment, and to expanding the production of and trade in goods prevent governments using these objectives and services, while allowing for the optimal use as an excuse for introducing protectionist of the world’s resources in accordance with the measures. objective of sustainable development, seeking both to protect and preserve the environment How this works is not always understood. and to enhance the means for doing so in a Take a WTO dispute ruling that says a measure manner consistent with their respective needs designed to protect the environment is illegal and concerns at different levels of economic under WTO rules. Often, this is misinterpreted development …” Preamble to the to mean the measure is illegal because it Marrakesh Agreement conflicts with trade. Establishing the WTO In fact, the ruling would say that the action violates trade rules. Typically this could be This is backed up by a range of provisions in the about discrimination: the measure is tougher WTO’s rules. For example, they allow countries on products from some countries than from to curb trade to protect human, animal or plant others or is tougher on products coming from life or health, and conserve exhaustible natural other countries than from domestic producers. resources. They allow subsidies for environmental If it were equally tough (or equally lenient) on protection. These provisions can be found in goods from all sources, it would be legal. more general rules and in specific agreements on product standards, food safety, intellectual That was the basis of a ruling in a WTO legal property protection, and so on. dispute about gasoline in the 1990s. The same applied in a case dealing with shrimp imports Reforms under the rules, such as cutting and the protection of sea turtles, when the industrial and agricultural support, help to WTO’s Appellate Body went out of its way reduce waste and environmental damage, and encourage efficient use of resources.
45. Other points The WTO, like all other institutions, has of view its shortcomings. But the main objections cannot be addressed by the WTO itself. The task of the WTO is to lay down ground rules for international trade; it is not designed to pursue other social goals. Globalization is not a policy choice – it is a fact. So the trouble is thus not really with But all of us face a choice.We can work to shape the WTO, but with the lack of similarly these powerful forces of change to the benefit powerful and effective institutions devoted of our people. Or we can retreat behind walls to these other social goals. Indeed, the of protection – and get left behind in the global most fundamental problem of the present economy. We must build a trading system for global order is that the production of the 21st century that honours our values as it private goods has taken precedence expands opportunity.We must do more to make over social development – i.e. the sure that this new economy lifts living standards provision of public goods. around the world, and that spirited economic competition among nations never becomes a Not only is the WTO not designed to race to the bottom in environmental protections, deal with environmental protection, consumer protections and labour standards. food safety, human rights and labor We should level up, not level down.Without such rights, but its modus operandi is a strategy, we cannot build the necessary public unsuitable for the provision of public support for the global economy.Working people goods. The strength of the WTO lies in will only assume the risks of a free international its enforcement mechanism which states market if they have the confidence that this are willing to accept because they system will work for them. want the benefits of trade. They will not, however, accept it in other areas. — Bill Clinton, 50th anniversary of the multilateral trading system, Geneva — George Soros, “Fixing, not Sinking, the WTO”, Project Syndicate, www.project-syndicate.org/commentary/ fixing--not-sinking--the-wto In the 50 years of the GATT [General Agreement on Tariffs and Trade] we have surely learnt enough – despite the de facto exclusion of many, many developing countries – to vastly improve on the management of the world trading system to the mutual benefit of all nations and people.We are firmly of the belief that the existence of the GATT, and now the World Trade Organization, as a rules-based system, provides the foundation on which our deliberations can build in order to improve. However, to realize the aspirations of all requires wise work to be done. The WTO came into existence precisely as a response to the need for a more effective regulatory, supervisory and enforcement environment for world trade and investment than the GATT could then provide. But now we can see that the success of the system agreed to in Marrakesh in 1994 will depend on the wisdom with which it is implemented and taken forward. — Nelson Mandela, 50th anniversary of the multilateral trading system, Geneva 43
46. The same applies to health. Here, the Opinions differ on whether the balance is right. greatest attention has been on pharmaceutical The present consensus agreement — including patents. The intellectual property (“TRIPS”) a rule change in 2003 — is the result of agreement is all about balance. In public health, compromises on all sides. Meanwhile, the WTO, it protects inventors’ rights for a limited period the World Intellectual Property Organization and in order to encourage research into new and the World Health Organization are collaborating more effective treatments, but it also allows to improve our knowledge of how to make governments room to manoeuvre so that the patenting and other policies work better treatments are affordable. Developing new together in the interests of public health. medicines and allowing governments some flexibility both contribute to better health. Then there’s the question of whether traded goods are safe. An agreement on food safety and animal and plant health (sanitary and phytosanitary measures) deals with The WTO’s intellectual property agreement protects inventors’ rights and allows governments room to make treatments affordable.
47. governments’ actions on contaminants in food and the spread of disease, and how to prevent these from being excuses for protectionism. Another on technical barriers to trade includes issues such as food labelling and product safety standards. Broader, more complex issues such as food security, handled by the Agriculture Agreement, are also important for health. And finally, dispute settlement rulings have also confirmed that WTO agreements give priority to health and safety over trade, such as one that upheld a ban on asbestos products. Product labelling A WTO agreement on technical barriers to trade covers issues such as food labelling. Nutritional Ingredients Dietary Country Facts list facts of origin 45
48. The WTO can ...
49. This is an under-reported benefit of the WTO’s trading system. Trade helps to sustain Trade rules stabilize the world economy by discouraging sharp backward steps in policy and by making policy more predictable. They deter protectionism; they increase certainty. They are confidence-builders. 47
50. Sticking to these is self-interest because 9 ... contribute to countries want their trading partners also to play by the rules and stay within their commitments peace and stability — and just in case pressure from domestic interests is too great, the information on raised trade barriers is shared globally through regular monitoring. By and large, peer pressure works. Two of the most fundamental principles of the trading system are at work here: helping trade to flow smoothly, and providing countries with a constructive and fair outlet for dealing with disputes over trade issues. When the world economy is in turmoil, the multilateral trading system can contribute Before: when protectionism backfired. to stability. Some would argue that this can The early 1930s saw a devastating trade war. even contribute to international peace. History In the Great Depression, fear that imports would is littered with examples of trade disputes throw more people out of work led governments escalating into armed conflict. to raise their trade barriers, thus setting off a vicious cycle of retaliation. This simply worsened It’s a claim that should not be exaggerated, unemployment. The world economy spiralled but there is truth in it. If we understand why, downwards, eventually contributing to the we have a clearer picture of what the system outbreak of World War II. Protectionism can actually does. easily plunge us into a situation where no one wins and everyone loses. Why was the system set up? Essentially, it was for two reasons. One was the big-picture After: restraint and confidence. Post-war, need to avoid a repeat of the destructive trade under the GATT/WTO system trade surged. tensions before World War II. The other was More importantly, it has been much more stable, countries’ pragmatic desire for their producers even during economic crises. Agreed rules and to trade more easily. confidence-building are key. The result was the General Agreement on Confidence helps to avoid the no-win Tariffs and Trade (GATT), created in 1948, trade wars witnessed in the 1930s. When immediately after the war. Its success led governments believe that others will keep their to further reforms, and the World Trade trade barriers within agreed limits, they will do Organization (WTO) emerged in 1995. the same. They will be in a much better frame of An ever-increasing number of countries have mind to cooperate with each other. agreed on trade rules that are now almost global. They are committed to the legally The WTO trading system plays a vital role binding limits on their trade barriers and in creating and reinforcing that confidence. subsidies that they have also negotiated. Particularly important are negotiations that lead to agreement by consensus and a focus on abiding by the rules.
51. Before ... Monthly value of world trade, 1929–33 $ billion Protectionism drained away two-thirds of world trade from 1929–33 $3.0 Without a multilateral trading system and agreed rules, countries did not trust each other to keep their markets open. Nor could they resist lobbying by narrow domestic interests. During the Great Depression, competition to raise trade barriers and protect domestic production and employment contributed to a slump in trade from about $3 billion per month in January 1929 to less than $1 billion by March 1933. Two-thirds $0.9 of world trade had been wiped out, with a devastating effect on the jobs and industries that were supposed Jan 1929 Mar 1933 to be protected. … and after Value of world trade, 1948–2010 $ trillion, current prices History has not been $16.5 Even the financial crisis of 2007 Trade would have saw a quick rebound. There was fallen to this point if some protectionist pressure around protectionism of 1930s the world in the belief that it would had been repeated and protect jobs. But by and large, two-thirds of trade had governments resisted. They were been wiped out. bound by their obligations in the WTO, and because they knew others were similarly bound, they were confident that the system would remain stable. If anything like two-thirds of world trade had been wiped out, the picture would have looked very different, and the damaging effect would have GATT ‘48 $0.06 WTO ‘95 been immense. 1948 1958 1968 1978 1988 1998 2008 49
52. The WTO can ...
53. Negotiations and disputes are news- makers, but a lot of vital WTO work takes place out of the limelight to help trade flow smoothly, for the benefit of the world economy and for all of us. 51
54. –– disciplines on how they can react when imports 10 ...be effective increase sharply or the prices of imports tumble –– limits on harmful agricultural subsidies without hitting the –– access to services markets headlines –– intellectual property protection. They also want to know that other countries are keeping their promises too — that’s a right in addition to their own obligations to keep to the rules. And often they want to see how other countries are putting the rules into practice The negotiations are over. The chairperson because they can learn from each other. has gavelled the deal through. Ministers have signed it. Parliaments have ratified it. It’s taken Much of this work is technical and detailed. years and now most of the media have left. It involves countries sharing information with each other and with the public, on anything within the But for the WTO and its member governments, WTO’s scope, from “anti-dumping” investigations this is just the start. to labels listing food ingredients, from copyright law to measures taken to combat bird flu. The deal consists of the agreements or “rules”. They aim to help bring us safe food to eat, a It also includes opportunities for countries to good choice of clothing to wear and telephone comment on each other’s actions and sometimes services with which to call our friends and to influence the final outcome. relatives, and effective medicines at affordable prices. WTO rules can even make it easier to In the WTO’s first 16 years, governments sent in have fun travelling or being entertained in our over 10,000 “notifications” just on their regulations own homes. for food safety and animal and plant health — very detailed, very technical, but very important for WTO agreements can only do that if they are specialists, essential for trade and for health. put into practice effectively — they have to be implemented and monitored. Years of essential, This does not make headlines — when it works, unglamorous work lie ahead. few people notice. When there is a problem, that’s when it becomes news. So when the WTO What governments have agreed to put into is not in the headlines, it’s likely that things are practice includes: going well, at least as far as day-to-day trading is concerned. –– lower trade barriers –– trimming red tape in customs and trade That, in a nutshell is what the WTO’s routine work is about. Without it, the negotiations would –– justifications for restricting imports on health, be pointless. safety and environmental grounds that are rational, not arbitrary
55. The WTO process PROBLEM? Still a problem? Dispute Talk, settlement negotiate Problem with application / Result? Implementation, monitoring, Agreement, shared information, rules discussion in committees Are they working? 53
56. WTO FACT FILE Location: Geneva, Switzerland Established: 1 January 1995 Created by: Uruguay Round GATT negotiations (1986–94) Membership: 159 countries* on 2 March 2013 Budget: 197 million Swiss francs for 2013 Secretariat staff: 634 (at end 2013) 77 nationalities 53% women, 47% men Head: Roberto Azevêdo (Director-General) Functions: • Administering WTO trade agreements • Forum for trade negotiations • Handling trade disputes • Monitoring national trade policies • Technical assistance and training for developing countries • Cooperation with other international organizations * In this booklet, the word “country” is used to describe WTO members. However, a few members are officially “customs territories” and not necessarily countries in the usual sense of the word.
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