THE WORLD TRADE ORGANIZATION:
PROCESSES AND RULINGS*
Co-Authors:
Jerry Mander, IFG Acting Director and Debi Barker, IFG Deputy Director
*This summary document is excerpted from the IFG publication, Invisible Government—The World Trade Organization: Global Government For The New Millennium?
The World Trade Organization (WTO) is the primary rule-making regime of the globalization process. In only five years of existence the WTO has become one of the most powerful and secretive international bodies on earth. The central operating principle of the WTO is that global commercial interests supersede all others. Obstacles to the smooth operation and rapid expansion of global corporate activity are therefore routinely suppressed - even if those "obstacles" are national, provincial, state and community laws and standards that are made on behalf of labor rights, environmental protection, human rights, consumer rights, local culture, social justice, national sovereignty, and democracy.
The WTO was formed in 1995 by an agreement among 125 countries (since expanded to 134) and was given powers far greater than have ever been granted to an international body, including the three primary characteristics of governments: executive, legislative, and judicial authority.
Operating from Geneva, Switzerland, with an administrative staff of 500 people, the WTO has now incorporated within itself more than 20 separate international agreements, including the once-dominant General Agreement on Tariffs and Trade (GATT). The WTO has full executive authority over all these accords.
The WTO's legislative authority stems from its ability to strike down the domestic laws, programs, and policies of its member nations and to compel them to establish new laws that conform to WTO rules. This authority extends to provinces, states, counties, and cities.
The WTO's judicial powers are expressed through its Dispute Settlement Body (DSB). This is comprised of panels of corporate and trade lawyers and officials who preside in secret hearings as final judges and arbiters of disputes among members.
Unlike other international bodies, including the United Nations, the WTO has also been granted far-reaching enforcement powers. It has the ability to demand compliance from its members, and to coerce and force compliance where necessary by means of a variety of disciplines, penalties, and trade sanctions which can be so economically severe that even the largest nations must yield.
Key Rulings by WTO Dispute Panels
On the Environment
* United States Regulations on Reformulated Gasoline Cleanliness
Challenge by Venezuela and Brazil against the U.S.
[Cases WT/DS2 and WT/DS4]
The WTO's first ruling dealt a direct blow to a 1993 Environmental Protection Agency (EPA) rule which required gasoline refineries to make cleaner gas in an effort to reduce air pollution. The EPA had opted for a program that allowed gradual improvement based on past performance. Where past performance could not be reliably ascertained, a refinery's baseline was set to match the actual 1990 performance data of all oil refineries. Thus, some domestic and foreign producers were treated identically, some domestic producers were held to higher standards than foreign suppliers, some to a lower one.
The rule was set to expire in 1998, giving refiners five years to bring baseline standards up to a single cleanliness target. However, in 1996 a WTO dispute panel and, later, an appellate body decided the U.S. rules could be "discriminatory" because the gradual phase-in violated GATT's National Treatment rule despite the fact that the EPA rule was being applied equally to some U.S. producers. As a result, the EPA, which administers the Clean Air Act, has been forced to re-write its standards to allow dirtier gasoline. One of the end results will be an increase in health problems in the U.S.
Both the original WTO dispute resolution panel and the appellate body also ruled that the U.S. had failed to prove that it had used the "least trade restrictive" measures to enforce its standard.
* The Shrimp-Turtle Case
Challenge by India, Malaysia, Pakistan and Thailand against the U.S.
[Case WT/DS58]
The U.S. Endangered Species Act (ESA) requires domestic and foreign shrimp fishermen to catch shrimp by methods that do not kill endangered sea turtles. ESA bans shrimp products from countries that do not use "turtle excluder devices" (TEDs). In 1998, the WTO ruled that U.S. laws created to protect turtles violated WTO rules, including the principle of National Treatment. The U.S. now has until December 1999 to comply with the ruling. One proposed solution was that the U.S. will only be allowed to target individual shrimpers' boats. The likely outcome of that will be to encourage "shrimp laundering," where shrimp that are harvested on boats without TEDs are transferred to boats with TEDs and passed off as "turtle-friendly" for import purposes.
This solution also means that many financial and administrative costs-hiring more border inspection personnel, training for officials to inspect boats- become the burden of countries that wish to protect environmental standards. Previously, the burden of proof was on the exporting commercial interests.
Many environmentalists, especially those from the South, point out that this dispute does not get to the heart of the matter. It fails to address the non-sustainability of industrial shrimp fishing. Small fishermen in both the North and the South have been harvesting shrimp for many years with little damage to other aquatic life. Sea turtles became threatened only when large, industrial fishing vessels came onto the scene. Although TEDS may save turtles, the continuation of industrial trawling is what destroys millions of marine species, along with the livelihoods of millions of traditional small-scale fishermen.
On Agriculture
* The Banana Case
Challenge by the U.S., joined by Guatemala, Honduras, Mexico and Ecuador, against the European Union
[Case WT/DS31]
In September 1997, a WTO panel ruled that the European Union (EU) was giving preferential access to bananas produced by former colonies in the Caribbean. This arrangement had been previously negotiated between the EU and its former African and Caribbean colonies under the Lomé Treaty.
The U.S., which does not produce any bananas, brought this case against the EU on behalf of the U.S.-based Chiquita corporation, formerly known as United Fruit. Chiquita produces bananas in Latin America on huge plantations that are notorious for exploiting cheap farm labor and using environmentally damaging techniques. In the Caribbean, which Europe is favoring, banana producers tend to be small-scale farmers who own and work their own land (an average of three acres), often incurring higher production costs.
This was a very divisive case within the WTO because of its economic, social justice, and environmental dimensions. At one point, the U.S. began implementing a threat to impose sanctions on more than $500m of EU exports, nearly setting off a trade war. The EU eventually said that it would comply with the ruling but it is still negotiating with the U.S. over settlement terms.
On Food Safety / Public Health
* Beef Hormone Case
Challenge by the U.S. and Canada against the European Union
[Cases WT/DS26 and WT/DS48]
The European Union has banned the non-therapeutic use of hormones in its food industry, citing many studies that indicate that hormones, particularly implants of pellets containing estradiol, could cause cancer. Following the challenge by the U.S. and Canada, and citing the onerous provisions of the SPS Agreement and other WTO rules, the WTO ruled against Europe's ban.
The WTO panel demanded scientific certainty that hormones cause cancer or other adverse health effects, thus eviscerating the precautionary principle as a basis for food safety regulations. This ruling has frightening implications for the ability of governments to set high standards to protect public health.
It means that European consumers and governments are forced to accept imports of beef raised with hormones or be penalized with harsh trade sanctions.
Public opinion in Europe is strongly demanding defiance of this WTO ruling. The U.S. and Canada have produced lists of exports important to Europe, including luxury items such as prosciutto, cheeses, and Dijon mustard, among other things, on which they intend to slap 100 percent tariffs if the EU fails to comply. These retaliatory measures total more than $125m.
The Chilling Effect
More and more frequently, proposed national laws are never put into effect, or are weakened, because another nation threatens a WTO challenge to the proposed law or its implementation. Developing countries are especially vulnerable to such threats by more affluent developed nations, which have more resources, both legal and monetary, to take a case to the WTO. Here are some key examples:
* Gerber vs. Guatemala's Infant Health Law
In one well-known case, The Agreement on Trade Related Intellecutal Property Rights (TRIPS) was used to thwart a law designed to protect infant health in Guatemala. In accord with recommended United Nations Children's Fund (UNICEF) guidelines, Guatemala had banned claims on packaging that equated infant formula with healthy, fat babies. Gerber Products Company, premier seller of baby food, induced the U.S. State Department to threaten a WTO challenge of this regulation, arguing that Gerber had an intellectual property right under the WTO TRIPS agreement. Under threat of challenge, Guatemala revised its law and now allows labeling that actually violates the UNICEF guidelines.
* AIDS Drugs Denied to HIV-Infected in Thailand and South Africa
In another case, the U.S. pharmaceutical industry is attempting to stop South Africa and Thailand from developing their own versions of AIDS drugs that can be sold at a fraction of the usual price. The TRIPS agreement guarantees a 20-year patent for drugs. However, over objections from developed nations, Article 31 of TRIPS provides a way for countries to override the patent through a "compulsory license" clause which allows a government to grant local companies a license to produce a drug in cases of health emergencies.
South Africa and Thailand, both areas hard hit by the AIDS virus, have used this clause to begin to manufacture AIDS-related drugs. For example, U.S.-based Pfizer used to charge $14 for a daily dose of fluconazole, an antibiotic that can fight off a fatal form of meningitis contracted by one in five AIDS sufferers in Thailand. Recently, three Thai companies began making the drug at a cost of just over $1 per daily dose.
The U.S. threatened Thailand with trade sanctions under the WTO. Twenty-five percent of Thai exports go to the U.S. The Thai government has now banned compulsory licensing even though it has a genuine health emergency.
In 1997, the South African government proposed new legislation to allow compulsory licensing. The U.S. government is now arguing with South Africa to discourage such a move from becoming law.
U.S. pharmaceutical companies claim that the drugs are so expensive because they have spent enormous sums of money on research and development. They neglect to mention that some of the most important AIDS drugs were discovered by researchers in the U.S. National Institutes of Health and by researchers in other facilities whose budgets are supplemented with government grants. Their discoveries were then handed over to corporations that produce the drugs and reap the profits.
On Culture
* Canada's Attempt to Save its Magazines
Challenge by the U.S. against Canada
[Case WT/DS31]
Currently, 85 percent of all magazines available at Canadian newsstands are American. In an effort to protect its own magazines, Canada gave favorable postage rates to certain Canadian periodicals and introduced a tax law that gave an incentive to Canadian advertisers to place ads with domestic, instead of foreign, magazines.
In 1997, the WTO ruled that Canada's measures were in violation of GATT. Canada has been forced to comply and has eliminated both the favorable postage rates for Canadian periodicals and the tax.
On Bio-Technology and Intellectual Property Rights
* Patents on Plant Varieties: Advancing the U.S.-Style Patent System
Challenge by the U.S. against India
[Case WT/DS50]
India's current law deliberately excludes plants and animals from patenting in order to maintain local control over these life forms. This helps to maintain low prices for some products such as pharmaceuticals. Under the current Agreement on Trade Related Intellectual Property Rights (TRIPS), however, developing countries must, by the year 2005, provide some form of patent protection for plant varieties that is GATT-compliant, i.e., that allows foreign companies the right to patent local plant varieties.
The basic complaint by the U.S. was that India had violated its TRIPs obligations by not moving fast enough toward compliance. The WTO concurred, even though its own deadline for compliance is 2005. India has been forced to grant market monopolies to corporations on the basis of patents granted by any other country in the world as a result of this WTO ruling.
On Human Rights
* The Burma Case: Human Rights Affected by Finance and Investment
Challenge by the European Community (EC) and Japan against the U.S.
[Case WT/DS88/1]
In 1996 the state of Massachusetts enacted a law that bars companies that do business with the brutal military regime in Burma (Myanmar) from bidding for large public contracts in Massachusetts. The European Community argued that, under WTO rules, including the Agreement on Trade-Related Investment Measures (TRIMS), the Massachusetts restriction is unfair "to the trade and investment community," and that it breaches current WTO rules on government procurement.
Massachusetts questioned whether doing business with a brutal military regime is fair. Similar economic sanctions were used in the anti-apartheid movement in the U.S. in the 1980s and have been credited for hastening the transition to democracy in South Africa. Should the Massachusetts law be struck down, the efforts of any social justice movement advocating government sanctions against criminal regimes will be severely hampered.
The mere existence of this WTO challenge has already squelched other efforts to use economic sanctions to uphold human rights. Hoping to avoid trouble in the WTO, in 1998 the U.S. Administration actively lobbied the Maryland state legislature to stop the adoption of a selective purchasing law against Nigeria. The proposal subsequently lost by one vote.
"If the actions of Massachusetts, which put the human rights of the Burmese people above the interests of a few multinational companies, do not comply with WTO rules, then the WTO rules need changing, not the actions of Massachusetts," said Bill Jordan, general secretary of the International Confederation of Free Trade Unions.
Looking Ahead
These are some of the more controversial provisions that are currently being considered, or may soon come under consideration at the WTO.
* Free Trade in Wood Products
A new "free trade agreement on wood products," is being pushed aggressively by the U.S. under the Advanced Tariff Liberalization (ATL) initiative. Although forest protections are already being eliminated under current WTO rules, the ATL and additional rules being introduced into other WTO agreements would further accelerate the elimination of all tariffs on wood products worldwide. Forest protection groups protest that such an agreement would result in a sharply increased rate of deforestation, declining health in global forests, a significant decrease in environmental protections for forests, and an increase in invasive species.
* Free Trade in Water
Currently, trade in bulk fresh water is under the disciplines of GATT. Already, several corporations around the globe have begun prospecting for fresh water reserves and have made agreements with various countries to begin drawing water from lakes and rivers to be transported across oceans in scrubbed out oil tankers or giant floating bladders. Some nations, led by the U.S., are now proposing that another WTO agreement, the General Agreement on Trade in Services (GATS), should specifically offer foreign corporations further rights and access to domestic water and water systems, including the commercial operation of municipal drinking water systems.
* Investor-State Mechanism
Investment measures will be initiated at the proposed Millennium Round. Such an agreement would extend the WTO's purview to include non-trade-related investment measures as well as investment in services. In other words, governments would no longer have the right or power to regulate the entry, behavior, and operations of foreign-based corporations in their own economies.
This mechanism gives foreign-based corporations the right to sue the governments of their host countries directly. This right has already been put into practice under NAFTA when U.S.-based Ethyl Corporation sued Canada because of its ban of a known neurotoxin gasoline additive, MMT. Ethyl argued that the ban was an "unfair taking;" Canadian government attorneys believed that Canada would lose under NAFTA law and advised settlement. Canada awarded the corporation $13 million in damages and repealed its ban on MMT.
* Broadcast Deregulation
Talks on broadcast deregulation would also be on the table. WTO documents reveal that the proposed discussion would include "access and reciprocity to domestic and foreign markets." This would open up the airwaves to takeover by global communications/entertainment corporations. It could also force countries to abandon subsidies to and domestic requirements for public broadcasting, such as National Public Radio in the U.S., or the Canadian Broadcasting Service. Ironically, the push for this deregulation is coming from U.S. corporations, even though the U.S. government has protected segments of its own broadcasting sector in both NAFTA and the WTO as being "essential to national security."
* The Computer Industry and E-Commerce
In another arena, the computer industry in the U.S. and other developed countries is calling for WTO negotiations to establish global rules on e-commerce, the selling and purchasing products on the Internet, in the hope of forcing countries to give up their right to tax or otherwise regulate commerce on the web. This would provide an advantage to large corporations for two reasons: (1) businesses that have physical locations (your local bookstore, market, etc.) would still have to pay local, state, and national sales taxes, and (2) full-time Internet access can be too expensive for smaller businesses and individuals. In addition to the access charges, which are projected to increase due to the industry's push to de-regulate, it is expensive to advertise a website and to provide security for financial transactions, not to mention the costs of adding a shipping and handling department to fulfill electronic orders. Thus, small proprietors are less able to compete.
