Future of the WTO
24th 2005, C.P. Chandrasekhar and Jayati Ghosh
is reasonably obvious to all concerned that the WTO,
and indeed the multilateral trade negotiation process
which underlay it, is in severe difficulty if not crisis.
A significant proportion - possibly the majority - of
its members are unhappy over the lack of delivery of
the promises of the Uruguay Round and the manner in
which the organisation itself is functioning.
countries in particular feel that they have been short-changed,
forced into trade liberalisation patterns that have
had de-industrialising effects and created agrarian
crises, even as the promised benefits of increased market
access in agricultural commodities and textiles have
been denied them. The spirit of the Agreement on Agriculture
and the Agreement on Textiles and clothing has been
breached not only in the small print of these agreements
but in their implementation as well. Developing country
governments also feel increasingly hemmed in and their
citizens feel exploited, by the range of new rules that
affect non-trade policies within the country, including
those relating to intellectual property.
Meanwhile, even developed countries are less than enthusiastic
about the multilateral process, which makes complete
domination difficult and does not allow for even more
aggressive opening up of markets of other countries.
The Unites States in particular has for some time treated
WTO rules and decisions with a degree of contempt when
these do not suit its government, even while it had
used it as an instrument of pushing for trade liberalisation
in its favour. Both the US and the EU are also voting
with their hands, so to speak: signing a plethora of
bilateral and regional trade agreements outside the
scope of the WTO, such that such deals now cover more
than 70 per cent of world trade.
What is even more compromising to the early proponents
of the Uruguay Round is that the most massive trade
liberalisation the world economy has ever experienced
has been accompanied by no commensurate increase in
trade flows. Chart 1 indicates the annual rate of change
in world trade in volume terms as well as in nominal
(US dollar) values. It is immediately evident that in
the period after the signing of the Uruguay Round agreement
and the formation of the WTO (that is, 1995 onwards)
world trade experienced no greater trend of growth and
possibly even greater volatility, compared to the previous
In addition, the functioning of the WTO itself has come
in for severe criticism. Two of the Ministerial Meetings
- at Seattle and then at Cancun - failed to come to
any agreement at least partly because of developing
country members' disgust at the heavy handed manner
in which the secretariat sought to impose its will (largely
reflecting US-EU positions), influence the discussions
and avoid democratic decision-making. The infamous ''Green
Room'' discussions of WTO negotiations, in which small
groups of developing countries have been ''persuaded''
or forced to accept decisions they had initially opposed,
have been exposed by Aileen Kwa and others. Even the
Dispute Settlement procedures have become another hurdle
especially for small developing countries who find them
extremely expensive, cumbersome and unduly prolonged.
Clearly there is much to reform in both the process
of negotiations and in the functioning of the WTO. In
this context, it is not surprising, and it is certainly
desirable, that the WTO itself instituted a special
commission to look into these matters, focus on institutional
issues, and provide recommendations to reform the way
the organisation works and how decisions are made. This
represented a tremendous opportunity to address some
of the most glaring problems and try to reform the WTO
in ways that would give it at least a minimal degree
of legitimacy among the people of the world.
Sadly, however, this opportunity has been squandered.
The report of the Commission thus set up (''The Future
of the WTO'', Geneva: WTO, 2005) is no more than a rather
weak justification and defence not only of the entire
set of principles on which the trade negotiations have
been based, but also of the clearly problematic workings
of the WTO. There is not even an attempt at cosmetic
repair; rather, the existing unsatisfactory system,
warts and all, is held up as a model to be further pushed.
This may be related to the composition of the Commission,
which is headed by Peter Sutherland, the first Director-General
of the WTO and presently Chairman of two major international
conglomerates of finance and industry: Goldman Sachs
International and British Petroleum. It also includes
among its eight members the most vociferous advocate
of free trade, the Indian economist Jagdish Bhagwati.
At any rate, the Report disappoints because it treats
all the concerns and criticisms of the functioning of
the WTO merely as so many debating points, without any
serious attempt to evaluate the genuine need for reform.
Therefore, the proposals it provides are so lacking
in imagination that they simply advocate doing more
of the same, and more aggressively than before. Where
the functioning of the WTO and the negotiation process
have been undemocratic and non-transparent, it actually
suggests formalising these features rather than changing
The basic assumptions of the Commission are clearly
laid out in the opening chapters. It is an axiom for
the Commission that trade does inspire growth and growth
will combat poverty. This is accepted so uncritically
that the evidence on recent deindustrialisation and
associated lack of employment in developing countries
is simply not considered: all this is simply blamed
upon technological progress.
Within this, the WTO is seen as a force only to the
good. ''The WTO provides a level playing field with a
credible referee dealing even-handedly with the players''.
(page 15) What would subsistence peasants in Central
America, whose cultivation has been rendered unviable
by cheap imports of highly subsidised maize sold by
giant US corporations, make of this? Or the millions
of small producers across the world whose livelihood
has been wiped out by import competition driven by large
Similarly, ''the WTO constrains the powerful'' (page 18).
No doubt that is why the share of MNCs in global trade
has increased dramatically over the past decade, and
concentration in all major spheres of economic activity
has accelerated greatly. In any case, any shortcomings
are not because of the WTO system but because individual
member countries are unable to avail of the manifold
benefits: ''The WTO is about providing opportunities
- it does not provide guarantees nor does it provide
all the conditions for participation in the global economy.''
So if people are suffering as a result of trade liberalisation
and increased patent-based monopolies, it is their own
In any case, the Commission clearly feels that enough
time and energy has already been spent on dealing with
all the carping from the world's poor and on weaker
member countries. ''The time and effort that has been
expended in recent years in the WTO and associated agencies
in addressing the needs and handicaps of the world's
smallest and poorest countries in the trading system
is remarkable, by any standards.'' (page 17)
Another concern of member countries, that WTO rules
are increasingly interfering in domestic economies and
constraining the policy autonomy of governments, is
given short shrift. According to the Commission, ''in
the context of the WTO, the complaint over sovereignty
is a red herring'' (page 29) and is in any case misplaced
because governments can now apparently ''reclaim control
at the multilateral level''. (page 34). Which governments
can really do so, and how, are questions that are conveniently
With such a framework, the conclusions and recommendations
of the Commission, alarming as they are, come as no
real surprise. The Report condemns preferential trade
agreements (PTAs) - except, naturally, the European
Union and NAFTA, which are supposed to be all right
because they apparently encourage a more positive attitude
to multilateralism! The PTAs of developing countries,
by contrast, such as Mercosur, are seen as undesirable
because they only involve trade diversion and are somehow
different from the NAFTA and EU in becoming stumbling
blocks to the multilateral process.
Special and Differential Treatment for developing countries
in WTO comes in for even sharper criticism. The Report
argues that this has been based on two assumptions:
first, that demands for reciprocal concessions from
developing countries are inappropriate because of the
different effects of trade liberalisation; and second,
that in any case the markets of developing countries
are so small as to be insignificant and so concession
do not really matter. The Report argues that neither
of these assumptions is valid, since developing country
markets have grown and because it sees a strong case
for the benefits of trade liberalisation in all cases.
In consequence, the Commission finds too many ''fault
lines'' in S&DT. While the Report does not go so
far as to suggest the complete removal of S&DT,
it does suggest that ''these mechanisms require further
study and research'' (page 24). Even the Generalised
System of Preferences for developing country exports
(GSP), which have played such a role in encouraging
some basic industrialisation in developing countries,
are dismissed as having had little positive effect.
The combination of preferential trade agreements, S&DT
and GSP is seen to have created a ''spaghetti bowl'' of
discriminatory preferences that is clearly anathema
to the simplicity beloved of the Commission. So they
advocate reducing all most-favoured nation tariffs to
zero, which would clearly eliminate the spaghetti bowl
problem! Note that quite apart from anything else, this
approach is extremely unfair to developing countries
where tariffs remain the dominant form of protection,
unlike developed countries where non-tariff barriers
now dominate. Given the havoc already created in the
production systems of the South through the trade liberalisation
experienced so far, this proposal is breath-taking in
its ignorance of reality.
Some of the most important recommendations relate to
the functioning of the WTO and the entire process of
trade negotiation, about which there has been much valid
criticism. Clearly, the Commission is unhappy with even
the veneer of democracy that is currently maintained
in the WTO. The consensus approach is obviously preferred
over voting (which would give developing country member
a majority), but the problem with consensus building
is that ''the majority's will can be blocked by even
In fact, the Report ends up advocating instead the plurilateralist
approach which was already suggested by the EU and has
already been rejected by developing countries. Here
it has been renamed ''variable geometry approach'', but
it still involves ''opt-in'' and ''opt-out'' possibilities
such that some members may choose to take on more obligations.
Also, the Commission is clearly impatient with the slow
progress of negotiations, and wants to speed them up
by increasing the strong arm tactics already availed
of by the large member countries and the WTO secretariat.
The Report argues that ''Green Room'' meetings with limited
access are both appropriate and necessary, notwithstanding
their undemocratic nature.
It also argues that the ''member-driven'' nature of the
WTO has involved a reduction in the role of the Secretariat,
and instead proposes a much-enhanced role for this body.
It should be noted that the Secretariat is an appointed
body with no accountability, and its activities in the
past have indicated a clear bias towards the positions
of the large developed countries. Despite this (or perhaps
because of this?) the Report advocates a leading role
for the Secretariat at Ministerial Meetings. Instead
of allowing for election of Chairs and facilitators
of meetings, the Commission wants these to be pre-announced
by the Secretariat, and argues that these appointments
''should not become part of a further bargaining process."
The remarkable thing about the Report is that it calls
for an intensification of all the processes and procedures
in the WTO that have been identified by developing country
members as part of the problem. The continuation and
even acceleration of indiscriminate trade liberalisation
without concern for its impact on employment and economic
activity, no controls on unilateralism by the strong
members especially the US, no protection from the monopolies
created by the workings of the TRIPS agreement - all
form part of the recommendations of the Commission.
And in addition, it calls for formalising the unequal
and undemocratic manner of functioning of the WTO.
Despite its claims to be an independent Commission,
this is clearly a report by and for the WTO Secretariat.
Rather than increasing its international credibility,
it is likely to diminish it further.