Recent high profile trade disputes involving bananas and sugar have shed some light on the power and influence of the World Trade Organisation ("WTO"). Such rulings have caused many to view the WTO as an international bully which forces countries, usually poorer ones, to take actions that are not in their best interest. The main objective of this article is to shed some light on the nature of the WTO, its functions and its influence on our daily lives.

What is the WTO?

Simply put, the WTO is an international organisation, with over 150 Members, whose main objective is to liberalise trade, in both goods and services. It is also concerned with the protection of intellectual property rights which are related to trade. Moreover, it is a forum for governments to negotiate trade agreements. It is also a place for them to settle trade disputes. Finally, the WTO is based on a system of rules embodied in the General Agreement on Trade and Tariffs (GATT), commonly referred to as the Legal Texts.

The WTO was established in 1995, and is based in Geneva, Switzerland. The organisation is one of the outcomes of the Uruguay Round of trade negotiations which concluded in 1994. Prior to its establishment, work on trade liberalisation was undertaken by the GATT, which dealt mainly with liberalizing trade in goods.

The GATT was established in 1949 in the post WWII era, along with the United Nations, the IMF and the World Bank. The idea was to establish an international organisation referred to as the International Trade Organisation ("ITO"). This plan failed after the US Congress decided not to ratify its membership. Members of the GATT (referred to as "Contracting Parties") agreed to keep the liberalisation agenda at the level of a generalized agreement – hence the GATT. It is therefore safe to say that the rules that drive the WTO as an organisation are not new – they are almost sixty years in the making!

Membership

The WTO is comprised of 154 Members, which are divided into three broad categories: Developed, Developing, and Least Developed Countries ("LDCs"). Members are given flexibilities based on their status.

Analysts and trade practitioners are careful not to use the word "countries" in a loose context as not all Members are independent countries. Hong Kong, China and Macau are Members although they are part of China.

Interestingly, a political compromise was arrived at to facilitate Taiwan's membership in 2002. Taiwan is referred to as "Chinese Taipei" – a carefully negotiated name, given Taiwan's absence from other international organisations such as the United Nations. Chinese Taipei's membership is largely based on its status as a customs union comprising Taiwan, Penghu, Kinmen and Matsu.

All CARICOM countries except Montserrat and the Bahamas are Members of the WTO. The Bahamas has made an application to join the organisation and a working party has been established to oversee the process.

Rules Based System

The WTO Agreement is based on a number of fundamental principles:

Non-discrimination – this is known as the most-favoured-nation treatment ("MFN"). Members cannot normally discriminate between their trading partners by granting a special favour (such as a lower customs duty rate for one of their products). The special favour must be extended to all Members.

There is however an exception to this rule! Members are allowed to form Regional Trading Arrangements ("RTAs") known as Customs Unions or Free Trade Areas ("FTAs"). In these types of arrangements countries are allowed to offer preferential tariffs to other members. Non-members are faced with a common external tariff ("CET"), which translates to higher tariffs for goods produced outside of the FTA or customs union. CARICOM is an example of an RTA. Goods produced within the community are generally treated more favourably than those produced outside. The Economic Partnership Agreement ("EPA") between CARIFORUM and the European Commission is also an example of an RTA.

National Treatment – giving others the same treatment as one's own nationals, this principle basically states that foreign produced goods, services and intellectual property are not to be treated less favourably than those domestically produced.

National treatment applies only once a product, service or intellectual property has entered the market. Therefore charging a customs duty on an import is not a violation of national treatment even if locally produced goods are not charged an equivalent tax.

Predictability and Transparency – Members are required to bind their tariffs, essentially making a promise not to raise their tariffs beyond a certain point (a ceiling). Bound tariffs can only be exceeded after a negotiated settlement is made with major trading partners. Compensation for lost trade is usually part of the settlement. Members rarely renegotiate tariff bindings due to the high cost of doing so.

Predictability and stability encourages investment, creates jobs, and consumers can fully enjoy the benefits of competition. Members are also required to notify all trade policies on a regular basis. This report is made available to all Members and other interested parties via the Internet.

Settlement of Disputes – The Dispute Settlement Understanding ("DSU") is often referred to as "the crown jewel of the multilateral trading system." It is therefore one of the pillars of the world trading system. Without a means of settling disputes, the rules-based system would be less effective because the rules could not be enforced. The WTO's procedure underscores the rule of law and makes the trading system more secure and predictable.

Members are encouraged to settle their disputes through consultation and mediation prior to the establishment of a formal panel. As a result of this procedure, since 1995, over 200 cases, have been settled "out of court."

The losing party in any dispute is obliged to swiftly correct the policy which initiated the dispute. If it is unwilling or unable to do so within a suitable time frame, then the winning country will seek approval to impose sanctions on the same sector as the dispute. If for example the dispute involved the import of motor vehicles, the winning party would be allowed to impose higher tariffs on motor vehicles from the offending country. However, the difficulty is that this sometimes amount to shooting oneself in the foot as the measure will make the products more expensive to the consumer.

In the current round of negotiations, proposals have been made to reform the dispute settlement procedures to allow countries to become more creative with the imposition of sanctions. Some of the proposals make it easier for poorer countries to transfer their sanctions to other sectors and even to more powerful countries which have the clout to make the sanctions more effective. Antigua-Barbuda's prevailing over the USA in the gambling case, is one case in point where this matter becomes relevant. Antigua and Barbuda has little power to force the powerful US government to comply with the WTO ruling. There is still some debate as to the nature of the most effective sanctions which could be imposed on the US Government in exchange for the damage done by the illegal trade policy involving cross-border gambling services.

Final Thoughts

The WTO is a member-driven organisation; the seat of power lies in its membership. Rulings are made by consensus; hence, if one Member opposes a proposal it will not be adopted. Each Member has a right to reject a proposal. As a matter of practice, careful efforts are made to ensure that proposals are acceptable to all. Consequently, proposals and declarations often contain provisions which satisfy the interests of all countries.

Trade policy is largely a reflection of domestic trade policies. The policies become acceptable based on their appeal or by the capacity of the proponents to make an attractive offer in another negotiating area. A concession in agriculture may be traded for a similar concession in services or non-agricultural market access ("NAMA"). No country, no matter how powerful, gets all of its demands met. This is a powerful reality for countries like ours in the Caribbean to bear in mind.

At the moment, much emphasis is being placed on completing the Doha Development Round of negotiations which commenced in December 2001. These negotiations call for inter alia, a further reduction in tariffs, lowering of the levels of subsidies in Agriculture, liberalisation of Services, and modification and improvement of rules involving trade facilitation and anti-dumping.

Participation in the negotiating process at the WTO is therefore in the interest of all members. Given the limited number of representatives from CARICOM in Geneva, it makes sense for us in the region to maximize our participation by paying closer attention to proposals made, making our own proposals and supporting those that reflect our interests.

In a subsequent article I shall discuss in further detail the main elements of the Doha Development Round and its implications for our lives.

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