The WTO and Free Trade

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  • by Anup Shah
  • This Page Last Updated Monday, July 02, 2007

The World Trade Organization, (WTO), is the primary international body to help promote free trade, by drawing up the rules of international trade. However, it has been mired in controversy and seen to be hijacked by rich country interests, thus worsening the lot of the poor, and inviting protest and intense criticism.

WTO principles

Founded in 1995 after the 8-year “Uruguay Round” of talks, it succeeded the General Agreement on Tarrifs and Trade (GATT), which was created in 1948 to lower trade barriers. The scope of the WTO is greater, however, including services, agriculture, and intellectual property, not just trade in goods.

The main principles of the WTO boil down to the following:

Non discrimination
National treatment implies both foreign and national companies are treated the same, and it is unfair to favor domestic companies over foreign ones. Some countries have a most favored nation treatment, but under WTO the policy is that all nations should be treated equally in terms of trade. Any trade concessions etc offered to a nation must be offered to others.
Reciprocity
Nations try to provide similar concessions for each other.
Transparency
Negotiations and process must be fair and open with rules equal for all.
Special and differential treatment
A recognition that developing countries may require “positive discrimination” because of historic unequal trade.

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Reality different from the principles

As principles, many of these sound good. Certainly the vast majority of the world’s nations believe so for they have signed up to the WTO.

However, in reality, power politics has meant that the WTO has received criticized by various groups and third world countries for numerous things, including:

  • Being very opaque and not allowing enough public participation, while being very welcoming to large corporations. (That doesn’t help the claims of free, open and democratic!)
  • That while importing nations cannot distinguish how something is made when trading, though it sounds good at first along the lines of equality and non-discrimination, the reality is that some national laws and decisions for safety and protection of people’s health, environment and national economies have been deemed as barriers to free trade. Take the following as a very small set of examples:
    • Countries cannot say no to genetically engineered food
    • or milk that contains genetically engineered growth hormones known to cause health problems
    • or trees that have been felled from pristine forests and so on.
    • Guatemala took efforts to help reduce infant mortality, in accordance with the World Health Organization’s guidelines, and to counter aggressive marketing by baby food companies aimed at convincing mothers their products are superior to the more nutritious and disease-protecting breast milk for their babies. The result? The affected corporations managed to take this to GATT (the predecessor to the WTO) and get a reversal of the law amidst the threat of sanctions. Profits prevailed.
    • Canada complained to the WTO about France’s ban on asbestos. (The previous link also makes the point of how the victim’s views are not heard in WTO proceedings, nor ar they part of the debate, even though there may be thousands of them.)
    • The United States’ attempt to ban shrimp caught using apparatus that were harmful to endangered sea turtles has been ruled as WTO-illegal, forcing the US to reverse its decision.

    Lori Wallach, Director of Global Trade Watch, provides further examples in a video clip (6 minutes, transcript) also noting that various global trade agreements have been pushed in such a way that they often undermine local laws and constitutions. If for example, health or environmental protections get in the way of the trade agreement, then they often have to be revoked or changed in favor of trade agreements:

    Get the Flash Player to see this video.

    Lori Wallach, Free Trade—The Price Paid (Part Two), April 13, 2005, © Big Picture TV

  • That instead of respecting the reasons why there has been special and differential treatment for developing countries, rich countries instead want to push poor countries to reciprocate equally, in what would therefore actually be an unequal result (as it would maintain the unequal terms of trade.)

A number of countries have also spoken out against the WTO saying that there needs to be more co-operation between the North and South (a general term to refer to the Rich and Developing countries, respectively) with regards to international trade.

  • During the week of May 20, 1998, celebrations marked 50 years of multilateral trade. However, as the following link mentions, the African nations did not feel that there was much to rejoice at and said that it was a party where only the rich nations has something to celebrate.
  • Most people in the world have not benefited from the current form of “multilateral” trading systems.
  • At a Mercosur (South America’s Southern Common Market) summit, then South African President, Nelson Mandela, had spoken of the need to ensure that there is more fairness in the globalization process. Mercosur is the world’s fourth largest economic power, after the United States, European Union and Japan.
  • There have been so many examples, it is impossible to list here. For more, see other parts of this site’s section on Trade, Economy, & Related Issues.

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Trade-Related Aspects of Intellectual Property Rights (TRIPS)

Another area, amongst many, that is a cause for tension, is the TRIPS agreement that defines how products can be protected from piracy. While just reward for one’s efforts is reasonable, politics and power influences have affected how patent processes work and what can or cannot get patented. A major criticism then has been that in its current form, intellectual property rights regimes like TRIPS serve to stifle competition and protect one’s investments and profits from it in that way. For poor nations it makes developing their own industries independently more costly, if at all possible.

Furthermore, as shown in the genetically engineered food section, indigenous knowledge that has been around for hundreds, if not thousands of years in some developing countries have been patented by large companies, without consent or prior knowledge from indigenous communities. People then find that they have to “buy” back that which they had already known and used freely.

As summarized from various articles from the Third World Network on pharmaceuticals, patents and profits, TRIPS has a number of problems including the following:

  • TRIPS aims to prevent imitation of products (which is ironic, given that this would allow further competition and better prices for drugs and other products, which is something that transnational corporations have often sung as being the benefits of free trade and corporate-led capitalism with minimal restrictions).
  • The effect of the 20 year period of a patent protection is to basically deny others (such as developing countries and their corporations) from developing alternatives that would be cheaper.
  • Technology transfer is prevented (again, a direct contradiction to those who support the WTO, free trade in its current forms etc., which includes western multinational pharmaceutical corporations.)
  • Transnational corporations will be able to continue to grow more due to their profits from this, while others will decline further.
  • While there are some provisions, such as compulsory licensing to allow creation of alternatives in cases of emergency and parallel importing to effectively permit shopping around the international market for the cheapest price of the same product, it doesn’t go far enough as many nations have faced pressure from the likes of the United States, when they have used these measures (even though they use it a lot themselves.)
  • TRIPS, WTO and general international trade related agreements do not take public health needs into account. Instead, commercial interests are promoted.

As Noam Chomsky points out, “The World Trade Organization regime insists instead on product patents, so you can’t figure out a smarter process. Notice that impedes growth, and development and is intended to. It’s intended to cut back innovation, growth, and development and to maintain extremely high profits.”

As J.W. Smith of the Institute for Economic Democracy describes, this is partly how inequality is subtly structured into law. These types of agreements strengthen subtle monopoly rights.

Oxfam also make important distinctions between reality and rhetoric and point out that TRIPS will “Exacerbate the technological divide”:

There is already a wide technological gap between rich and poor countries. Although developing countries are rich in informal knowledge, they are net importers of the kinds of high-tech goods and know-how protected by TRIPS. Industrialised countries, on the other hand, account for 90 per cent of global research and development (R&D) spending, an even higher share of patents, and are the main exporters of IP.

TRIPS will exacerbate this divide by increasing the cost of knowledge-rich goods imported by developing countries. Royalties and licence fees paid by developing countries to patent holders in the industrialised world have been climbing rapidly since the mid-1980s. In 1998, the US received a net surplus of more than US$23bn from its IP exports.

Further skew R&D towards rich-consumer markets rather than the basic needs of the poor. There is a massive “market failure” in R&D into medicines and agriculture. Most global R&D is targeted at the markets of rich consumers rather than at the basic needs of the poor. Less than 10 percent of global spending on health research addresses 90 percent of the global disease burden. Similarly, much agricultural research aims to improve the appearance and taste of produce for consumers in rich markets, rather than to support the sustainable farming of staple foods such as sorghum and cassava, on which many poor farmers depend.

Intellectual Property and the Knowledge Gap, Oxfam Policy Paper, December 2001

While this is a large topic itself, to start with, you can start at the following sections of this site that discuss some of the problems in the context of specific issues:

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The Multilateral Agreement on Investment

The Multilateral Agreement on Investment (MAI) was one such example of a trade and investment related treaty which would emphasize the ability for corporations to be allowed more freedom and less constraints. As seen in the MAI section on this web site, enormous global activism by ordinary citizens saw this derailed for now.

While for the moment, the MAI has officially been held back, this is not a halt to the MAI and trade negotiations still continue and will continue that very much represent the ideas and objectives of the MAI.

While the initial agreement was in the domain of the OECD (Organization for Economic Co-operation and Development), many are pushing for it to be moved to the WTO.

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The General Agreement on Trade in Services (GATS)

GATS is similar to the multilateral agreement on investment, except that it is withing the WTO. It is less well known than the MAI and is still undergoing negotiations, unlike its forerunner, which was derailed.

For more information, refer to this web site’s section on GATS.

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The Seattle Millennium Round of the WTO

At the end of November 1999, Seattle saw major governments meet at a WTO ministerial meeting to discuss various trading rules. Seattle also saw free speech cracked down on in the name of free trade. Enormous public protests ensued. There were many differences in the perspectives of developing industrialized nation on the current reality of free trade and how it affected them. It resulted in a WTO failure to agree on many issues. Developing countries were sidelined and one delegate even physically barred from a meeting, according to the previous link.

The Seattle section on this web site talks more about the Seattle Millennium Round.

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China’s Entry into the WTO

A very intense and passionate subject (in the US, anyway), had been whether or not to give permanent Normal Trade Relations (NTR) status to China, by the US. As China achieves this, then China is able to get closer and closer to entry into the World Trade Organization. (And as of November 2001, China has gained entry into the WTO.)

Pro China entry into the WTO and NTR status in the US is basically from the business community who see the large population of over a billion as more consumers to buy and consume products. There is also the equally mouth-watering possibility of an enormous source of cheap labor that global corporations would benefit from. (There is little concern about how the Chinese population would benefit, but more about how this would benefit American businesses—not even American people. A set of distinctions that clearly indicates underlying agendas of overly corporate-led globalization).

Anti-China perspectives are more interesting and concerning. In the US, there has been an incredible amount China-bashing from elements of the right wing as well as many on the left. Reasons are many, some which are legitimate, such as concern for human rights in China, the loss of jobs in the US etc (largely “left” concerns) but others that reek of US unilateralism, anti-communism, imperialism to isolationist and racist right wing sentiments. For example, there are those that describe China and others as the new enemy to replace the Soviet Union resulting in increasing rhetoric in the US about China being a security threat to the US, which is not likely. It thereby plays a part in helping to justify the large Pentagon budget and hence a large military presence around the world to safeguard American interests.

However, most of these views fail to tackle more fundamental issues. For example, if these concerns such as human rights were the basis of entry and acceptance into the WTO, then many nations, including the US would most likely fail such criteria. (Some environmentalists in the first world say that China is a threat to the global environment due to the large population. However, as mentioned in the population section of this web site, when looked at from a per captia perspective, the US, with five percent of the world’s population has disproportionately the largest amount of consumption and environmental pollution.) The US also has the largest prison population in the world and the largest disparity between rich and poor of any industrialized nation due to various economic and social policies. For more about the hypocritical reasoning used to either criticize or support China’s entry see some of the links to more detailed analysis, below.

So, if these are not meant to be the criteria from which to judge whether or not to allow China entry into the WTO, then why should China either be accepted into the WTO or not be accepted?

That is still a tough question to answer. Given that that the underlying problem is still about the way the global economy is being formed, and who it tends to benefit and who it tends to marginalize, on the one hand, it may be against the interest of most Chinese citizens to enter the WTO. On the other hand, does it make sense to isolate the world’s most populous nation from a global organization, which, if it is to be reformed or changed in anyway to become more open and democratic, China would need to play a part in? Also, if the Chinese economy is not ready to cope with international competition, then social costs may be high.

If entry is subject to the whims of Washington, EU and Japan deciding the criteria for entry for other countries, then this unilateralism would not help serve the drive towards globalism. (Especially when some of these countries, would not pass their own criteria, as mentioned above, and as links below will show.) The real issue is about the way the global economy is being shaped and the legitimasy of the current institutions serving this purpose (IMF, World Bank, WTO, etc).

For a more detailed look into these perspectives, that also criticize much better, the mainstream “left”, “right” and others’ reasons and level of discourse for or against China in the WTO you can start at the following:

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Corporate Influence at the WTO

Transnational corporations (TNCs) are able to exert enormous influence in no less a powerful body as the World Trade Organization (WTO). These TNCs are closely linked to the WTO decision-makers themselves.

For more detailed information, you could start at the web site of CorpWatch.

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Author and Page Information

  • by Anup Shah
  • Created: Monday, September 07, 1998
  • Last Updated: Monday, July 02, 2007

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Document Revision History

DateReason
July 2, 2007Added a small video clip regarding some of the impacts of global trade agreements
July 28, 2006Small update on WTO principles. Most of the document remains unchanged for the time-being since December 27, 2001.