Tuesday, August 22, 2006

The Future of the WTO

The Doha round of trade talks has fallen apart, but the WTO is going strong, especially in the area of trade dispute settlement. There is now an imbalance in the WTO. Politically, it is very weak: member states are unable to reach consensus to make decisions and take action. They have not only been unable to reach consensus on the recent round of trade talks; they have even had trouble doing things like electing a Director-General. At the same time, the dispute-settlement part of the organization is very strong and active. In the eleven years of its existence the WTO has been sent over 350 disputes to settle, which is more jurisprudence than any other international organization.

The institutional imbalance could be a big problem.

Problems will arise if the dispute tribunals start to fill the vacuum left by political inaction by interpreting (and effectively setting) trade law. For example, the WTO agricultural agreements included exceptions that had expiry dates. The exceptions have now expired and negotiations to revise or renew them have been unsuccessful. What will a dispute tribunal do if asked to enforce a part of the law that was previously covered by an exception? Will it honor the exception, thus implicitly making permanent something that was supposed to be temporary; or will it rule that the exception doesn't apply, which will commit some members to something they only accepted with an exception?

In effect, the dispute tribunals could gain a sort of Supreme Court status, creating trade law by interpreting what is agreed to date. This is not what anyone wanted or foresaw when the WTO was created. Current WTO Director-General Pascal Lamy has worried publicly that the WTO dispute settlement system may be too strong, and others agree.

The WTO has released a report on ways to change, called the Sutherland Report. There's a pretty good description of its proposals here. A major part of the proposals aims to improve the organization's structure so that it can reach consensus and get things done.

The WTO is having problems getting things done for a lot of reasons:

- It has 150 member countries, and each has veto power on all decisions. There have even been cases where a WTO ambassador vetoed something without his country's approval, following his own agenda.
- The WTO grew out of GATT, which was an international agreement but not an international organization. The WTO has never developed the structure it needs to perform its functions. It has an insufficient management structure to guide the political process.
- World power is changing. For example, China, India and Brazil have become large players, and others are just behind. Old alliances are fracturing.
- There is disagreement among member countries about the mandate of the WTO. Should its mandate be just to liberalize trade? Or should it do other things such as encourage environmental and labor protection or economic development? Some even argue that it should be used to enforce international environmental and labor agreements.
- Many of the smaller economies, such as developing countries and Canada, and some of the big countries, such as China, have given all the trade liberalization concessions they can for the time being, and are busy implementing them. They simply can't negotiate more.
- Some of the larger economies such as the US and EU are dragging their heals on implementing their obligations, making other countries less confident about the fairness of the process.

Unfortunately, the member states of the WTO don't seem very interested in institutional change. As Debra Steger, a Canadian trade lawyer who helped create the WTO, says, "The Sutherland Report was met with a huge yawn. The delegations aren't interested."

The WTO is also facing very real questions about its legitimacy. It makes decisions that many feel should be made by representative governments, and it does it in secrecy. Other international organizations allow open hearings; the WTO does not, and should.

In Canada, there is no longer even a consultancy program whereby citizens, business, labor and NGOs can provide input to our negotiators. In some cases this has led to failed negotiations because the negotiators didn't know what to do. In all cases it has made people question the legitimacy of the decisions.

Despite its many flaws, the WTO serves a very important role in making trade negotiations open to all. Instead of letting the US, EU and Japan call the shots by making trade negotiations all about regional trade agreements, the WTO brings everyone to the table. Overall, the dispute settlement process has been very effective. The WTO needs to be reformed. Perhaps the collapse of the Doha round will knock some sense into people and energize them to make some changes.


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