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29 May 2006 Whither the World Trade Organization?John H. Barton, Judith L.Goldstein, Timothy E. Josling & Richard H. Steinberg The Evolution of the Trade Regime: Politics, Law, and Economics of the GATT and the WTO, Princeton NJ, Princeton University Press, 2006 (242 pp). ISBN 0-69112-450-7 (hardcover) RRP $80.95. It is hard to believe that just over a decade ago the world had witnessed the successful conclusion of the longest and most comprehensive international trade negotiations ever. Seven years of the Uruguay Round negotiations had resulted in substantial liberalisation of trade in goods, and produced new agreements in areas such as trade in services, intellectual property, investment, and agriculture, which represented the development and extension of global trade rules on an unprecedented scale. At the same time, the international mechanism for resolving trade disputes between nations was reformed to make it more predictable and effective—and to give it real teeth. These agreements and the new dispute settlement mechanism were brought together into a new World Trade Organization (WTO), which at long last put the multilateral trade system on an equal footing with the other Bretton Woods institutions, the International Monetary Fund and the World Bank.
At that time, there were great hopes for the future of the WTO and its role in regulating the global economy. The international trade regime was no longer seen as an exclusive club for rich western nations and the WTO’s membership swelled to nearly 150, most of which were developing countries. China, the world’s fourth largest trader, joined in 2001, and many former communist countries, including Russia, joined the queue. The dramatic expansion of international rules, the burgeoning membership of the WTO, and its emphasis on promoting economic liberalism held out the promise of rising production and trade and increased standards of living across the globe. For all these reasons, the WTO was expected to be stronger and more robust than its predecessor, the General Agreement on Tariffs and Trade (GATT), the treaty which had ‘governed’ the trade system between 1948 and the establishment of the WTO in 1995. But this optimism proved to be misplaced. Instead of being strengthened over the past decade, the multilateral trade regime has been subjected to immense pressures and strains. Developing countries argue that the new rules for global trade are imbalanced, favouring the interests of rich countries to the detriment of poor countries. They point to the fact that the developed countries continue to drag their heels on the liberalisation of developing country exports, such as textiles and agriculture, while at the same time making difficult new demands on developing countries in areas such as intellectual property protection.
Similarly, many NGOs are deeply critical of the WTO, arguing that its emphasis on economic liberalism marginalises other important concerns such as environmental protection and human rights, while overlooking the differential economic impacts of trade liberalisation. On the streets, anti-globalisation activists and demonstrators have become a regular fixture at WTO ministerial meetings. Meanwhile, the current Doha ‘Development Round’ of trade negotiations remains deadlocked over the perennial issue of agricultural subsidies and protection, as one crucial deadline after another is thrown out the window and expectations plummet. And the rapid and unchecked proliferation of discriminatory trade agreements threatens to undermine the very core of the global trade system with its emphasis on non-discriminatory multilateralism. Instead of being strengthened the global trade regime has been weakened, its relevance and legitimacy now open to question. So why did the optimism of the mid-1990s prove to be so wrong-headed? And can the WTO remain a viable institution for the regulation of world trade? Is it capable of re-establishing its legitimacy around new and agreed purposes? These are among the central questions of a new book, The Evolution of the Trade Regime, by John Barton, Judith Goldstein, Timothy Josling, and Richard Steinberg. The authors are an academic lawyer, political scientist, economist and trade policy practitioner respectively, and each brings disciplinary expertise and professional knowledge to bear on the past, present and future of the multilateral trade regime. The study canvasses a broad range of factors that have contributed to the WTO’s problems including the dramatic expansion of trade rules into the domestic regulatory sphere, the challenge presented by an expanding membership of increasing diversity and diverging interests, and the changing configuration of power politics within the WTO. And unlike many other contemporary analyses of the global trade system, which tend to focus on legal and economic matters, this book is unabashedly political, focusing on power and politics within the WTO. A central concern here is the political functionality of the WTO. As many have observed before, the GATT’s greatest strength was—paradoxically—its weakness. Its lack of a strong organisational base and the flexibility of its rules gave governments sufficient policy autonomy to reconcile domestic interests with the goal of trade liberalisation. To be sure, powerful interests in powerful countries could block liberalisation; for instance, electorally powerful farm lobbies in the United States, the European Union and Japan have prevented significant liberalisation of agricultural production and trade. However, participation in the GATT also gave governments some counterweight to domestic political pressures; governments encouraged domestic coalitions of export-oriented interests that could provide momentum for trade liberalisation in the face of opposition from import-competing industries. And the norm of reciprocity in the GATT trade negotiation process enabled governments to demonstrate gain as well as pain to domestic constituencies in the granting and securing of ‘concessions’.
The GATT’s most important role was engendering normative standards for international trade which emphasised the efficiency and welfare benefits of trade liberalisation, the importance of non-discrimination, the legitimacy of concerns about economic development, and the principles of reciprocity and mutual gain. The GATT was less a vehicle for free trade than it was a regime that tried to regularise expectations about the trade policies and conduct of its participating countries. Its legitimacy derived from the belief that its norms were mutually beneficial—while always recognising that power politics, and especially US power, ensured that the rules and the agenda reflected the interests of the most powerful players in the system. The WTO is a very different beast. Whereas the GATT generally regulated trade in goods at national borders, the WTO’s rules are broader and deeper. Trade regulation has been extended to include labour, environmental, and production standards, and this has been confirmed by several rulings of the new dispute settlement mechanism. In addition to expanding the international rules affecting trade, the WTO has new agreements that extend deeply into many aspects of domestic policy and regulation. These include intellectual property protection, foreign investment policies, and tradeable service sectors of the economy such as health, education, culture, and social services. In the WTO, there is a much stronger focus on the international harmonisation of rules (for example, intellectual property protection) and much stronger obligations for all members, regardless of their stage of development. Barton and colleagues argue persuasively that these changes have created a crisis of legitimacy within the WTO. The old GATT system was oriented towards trade liberalisation, a goal that was believed to be mutually beneficial to its members. By contrast, the WTO’s rules are not mutually beneficial for its members, and there are reputable empirical studies that suggest that outcome of the Uruguay Round has been on the whole detrimental to developing countries. Moreover, many developing and least developed countries, lacking well developed bureaucracies and relevant local expertise, struggle to implement their WTO obligations and confront great difficulties identifying and representing their interests in WTO negotiations. As a result, many debates within the WTO now focus on ‘development’ and ‘fairness’ but, as the authors note, this development-oriented vision remains ‘inchoate’. Even within wealthy countries, the old trade politics that played off the interests of rent-seeking industries against those of the export-oriented industries is less relevant now as the terrain within the WTO has shifted to rules affecting domestic regulatory systems. The old debates about protection versus free trade have by and large been won in favour of economic liberalism. However, there is no similar consensus around the inclusion of domestic regulatory mechanisms in trade agreements, as was evident in the controversy that accompanied the negotiation of the Australia-US trade agreement and especially its inclusion of Australia’s Pharmaceutical Benefits Scheme.
Without international consensus around the benefits of the WTO’s rules, the WTO lacks relevance and legitimacy. The consequences are already plain to see: the United States, which for 50 years set the agenda and maintained the momentum in the international trade regime, is now devoting its energies to bilateral and regional trade agreements. These are quicker and easier to complete and when they involve negotiations with smaller, weaker partners, they can secure US trade objectives with minimum domestic political pain. And this is not just a strategy for the powerful; in the past few years, there has been a stampede towards bilateral and regional trade agreements more generally. While economists disagree over the economic and trade effects of these preferential deals, there can be no doubt that they have sucked the oxygen out of the Doha Development Round of WTO negotiations. Can the WTO remain a viable institution for the regulation of world trade? The authors of this book are deeply pessimistic. They suggest that the ‘notion of universal rules may be too utopian’ and that smaller regional trading institutions may supersede the multilateral trade regime as we have known it for the last sixty years. In their view, unless the WTO responds to the rapidly changing international economic order, thus reinventing its relevance and its legitimacy, it may well be doomed. Ann Capling is Associate Professor in the Department of Political Science at The University of Melbourne. Her books include All the Way with the USA: Australia, the US and Free Trade (UNSW Press, 2005) and Australia and the Global Trade System: From Havana to Seattle (Cambridge University Press, 2001). |
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