Synopsis
There are various criticisms of the WTO, ranging from certain policies and methods of enforcement to the decision making process and the structure of the organization itself. To what extent are these criticisms true and if so how much do they affect countries and economies? Various methods of reform have also been suggested through the years. This essay will identify a few particular problems with policies, principles and structure/decision making process of the WTO and give general solutions as to how those problems should be solved.
Background
On the first of January 1995, the World Trade Organisation succeeded the General Agreement on Tariffs and Trade as the de facto international trade regulator. The general mission of the WTO and its forerunners were to improve the welfare of the people within its member countries by “ensuring that trade flows as smoothly, predictably and freely as possible”. Its predecessor had merely 23 countries and the first negotiation round in Geneva took only 7 months in starting April 1947. The difficulty in improving the welfare of all people within its member countries has significantly increased since 1947 which correlates with the number of member countries which again correlates with the amount of interests each nation has. The most recent round of negotiations in Doha, which started in November 2001 with 141 countries, has collapsed. This reflects on the conflict in interests between developed countries (lead by USA, EU and Japan) and developing countries (lead by India and China). The most common criticism of the WTO is through its operations, there has been a divergence instead of a convergence of income levels between the rich and poor nations and this effect will continue unless there is significant reform.
Discrimination
Even though one of the principles of the WTO is “trade without discrimination”, developed countries are still able to find a way around this. Under WTO agreements countries cannot discriminate between trading partners. If a country so wishes to establish a tariff on a particular good, that tariff must be the same across the board for all goods of the same type no matter which WTO member it is coming from. This principle is known as the most-favoured-nation (MFN) treatment. In theory this principle should provide poorer countries access to better trade agreements that richer countries have with each other. However the flaw in this rule is that it did not take into consideration that developing countries produce different things from developed countries. If a tariff were to be imposed on all textile, clothing and footwear coming into Australia, it would not affect countries such as Japan and USA as much as it would affect developing countries like China and India. The WTO also has a set of antidumping measures, when these measures are put into practice they also act against the development of developing countries. Another note is that countries may impose a ban on the import of all goods of a particular type such as Australia not importing bananas which is completely in line with the Technical Barriers to Trade (TBT), this has an even higher effect on the economies of other countries within the WTO, generally speaking bananas are grown in more tropical climates and the majority are grown in developing nation. Even though the supposed reason for ban is a due to industry standard, it in effect is a good excuse for protectionism to protect local industry, this translates to a heavy price for consumers as demonstrated by the effects of Cyclone Larry, the ban is on the grounds that imported bananas will bring exotic diseases and pests into Australia. This ban would have a lot more of an impact on the economy of the Philippines than it would on the economy of New Zealand or USA if any. An amount of the decisions to ban items that contain risk to the environment or wildlife when reviewed, have been overturned. In 1998 a dispute settlement panel ruled in favour of Canada against Australia, in 1994 Australia had imposed a ban of live salmon from Canada after a risk assessment report deemed it a threat to wild Australian as there were 20 types of bacteria present in Canadian salmon that was not found in Australian salmon. The conclusion of this assessment is the Canadian salmon posed a risk of spreading and infecting wild Australian salmon. The WTO found the Australian risk assessment was inadequate and not based on sound science. There could be parallels drawn between this case and the current situation of bananas in Australia and possibly many other cases where a ban is imposed based on proclaimed scientific risk assessment, only when a ban is appealed can the decision be reversed. Even though since the Salmon case between Australia and Canada set a new precedent had shifted the burden of proof from the exporting country proving that it is safe to the importing country having to prove the product is unsafe, questionable and debatable bans are still enforced in Australia and other importing nations. So thus it is still possible to discriminate against a particular group or a particular country when conducting trade as a member of the WTO.
Structure
Democracy is the general ideology the WTO is based on. One country gets only one vote, rather than a vote for every dollar. However decisions are rarely made on basis of votes and is made with a consensus, this in theory should give any country the right to veto any decision. However, poorer countries cannot afford permanent representation and constant economic legal advice, thus the decisions are usually made by the larger and richer countries such as USA and EU. Power does not only extend to the rich and powerful countries, it also stretches to rich and powerful international organizations, even though co-operations have no standing in the WTO, most advisory bodies in the WTO is filled with co-operate representation. The forming of the TRIPS agreement was done in close collaboration with a coalition of 12 of the biggest US transnational businesses, these include: General Electric, General Motors, IBM etc.
Even though that a coalition of corporations was allowed to participate and influences the agreements to a large degree, no NGOs were allowed to participate in negotiations or even comment on the agreement. So even though major corporations have no official standing in the WTO and will never receive membership, companies such as IBM wield much greater influence in the WTO and have more representation than a poor or developing member country. Policies such as TRIPS have also come under heavy scrutiny from developing countries as this policy in effect moves wealth from poorer developing countries to patent holders which are generally large corporations or certain wealthy individuals that are in countries that are already developed and wealthy. The TRIPS agreement also demonstrates how the WTO in principle discriminates against poorer countries as TRIPS was formed by richer countries and their corporations targeted against poorer developing countries, which also reinforces the criticism that the WTO simply increases the difference in wealth between developing countries and developed countries.
Solutions
In order to solve the problem of countries exploiting the MFN treatment, it must obviously be reformed. Instead of having to tax all goods of the same type from all countries, the tax instead has to be put on all goods of the same importance to the exporting country. For example, if clothing was China’s major export to Australia and Australia decides that it wants to put a tariff on clothing, then it must also put a tariff on oil coming from Saudi Arabia. This way, no nations may be able to exploit the treatment as tariffs are not imposed on goods based on type but on importance (measured either in volume or monetary value) to the exporting country. However the goal of this reform is not for countries to impose tax on all imports but to pressure on countries to remove tariffs on all imports, especially developed countries. Developing countries should be given a longer “grace period” to allow time for local industry to develop. Tariffs on all goods should slowly decrease, this promotes the idea that local industries should increase efficiency rather than depend on government to subsidise and tax cheaper imports, the initial tariff on the imported good should only be enough to level out the price so it is the same as locally produce goods, this is so that in the initial stages, imported products will be judged not on price but other qualities of the product. This gives an even playing field for the imported goods and would force local producers to compete with imported goods as they would another domestic company, they could choose to remain more expensive when the tariff is gone and use marketing to put emphasis on other attributes or they could compete on price alone. In terms of the TBT and countries imposing bans based on local policies, the shift of the burden of proof from the exporting country to the importing country is definitely a move in the right direction. However unreasonable bans and excuses for protectionism still happen, perhaps there has not been enough precedence ruling against importing countries but policies need to be changed with emphasis on scientific proof, also local trade laws and local trade authorities should not be able to impose a ban unless approved by the WTO. It is recognised that imported goods in certain cases may have negative effects on a particular country’s environment or population, to protect local environment and population, there should be a period where scientific review is conducted of products that are to be introduced to a country. If the scientific basis for ban is disputed, it may also be reviewed by a third party who is no affiliated with the related countries to decrease the chances of a unjustified ban that could potentially harm exporters. If the scientific basis for a ban is deemed incorrect/inaccurate/fraudulent, there should be compensation from the importing country to the exporting country; this would discourage the practice of using the TBT as an excuse for protectionism
The issue of the undemocratic nature of the WTO in terms of policy making is a hard issue to tackle head on. In terms of corporations having unofficial representation in the WTO, the WTO should either allow official corporate representation and introduce a democratic system where an equal amount of industry leaders from every country should have representation or it should eliminate advisors with current corporate affiliations completely. It seems to eliminate corporate representation completely is unrealistic and impractical. The best solution would be to introduce a new system of equal corporate representation from all countries rather than having a select few companies has influence on industry changing policies such as the TRIPS agreement. However not all countries have the same amount of companies in a particular field, to solve this issue industries in a country should group together and negotiate amongst themselves and select a representative at the WTO. Decisions should be made by votes more often than other methods to insure that all countries/businesses have an equal say in policies and decisions are not made on a “a dollar a vote” basis. If the corporate world have representation in the WTO it would only be reasonable that NGOs are also allowed to participate in negotiations or at least be able to officially review policies before they are enforced. This would decrease the chances that policies that are particularly in favour or one side than others are formed.
Conclusion
The reforms suggested are all in consideration of the WTO’s main principles and all aim to improve the WTO so that these principles are seen as missions. They reform methods all suggest that there needs to be more transparency on all levels of administration and membership within the WTO. Only through transparency can democratic decisions be made that reflect the interest or approval of all member states and more importantly the people represented. Arbitrary decisions should be avoided where possible and voting should be the predominant method of making decisions. Corporate representation should also be governed rather than be ignored officially so that all corporations from different countries can have an equal say based on the “one country, one vote” policy and not the “one dollar, one vote” idea which seems more common within the WTO under the current system. Only through these reforms can the WTO truly be a organization that improves the wellbeing of all people within its member states no matter the wealth of the state or the individual.
