THE WORLD TRADE ORGANIZATION:
PROCESSES AND RULINGS*
Jerry Mander, IFG Acting Director and Debi Barker, IFG Deputy Director
*This summary document is excerpted from
the IFG publication, Invisible GovernmentThe 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
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
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.
- United States Regulations on Reformulated
Challenge by Venezuela and Brazil against the U.S.
[Cases WT/DS2 and WT/DS4]
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 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
- The Shrimp-Turtle Case
Challenge by India, Malaysia, Pakistan and Thailand against the
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.
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 Banana Case
Challenge by the U.S., joined by Guatemala, Honduras, Mexico and
Ecuador, against the European Union
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
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.
- Beef Hormone Case
Challenge by the U.S. and Canada against the European Union
[Cases WT/DS26 and WT/DS48]
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
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
- Gerber vs. Guatemala's Infant Health
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.
- AIDS Drugs Denied to HIV-Infected in
Thailand and South Africa
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
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.
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.
- Canada's Attempt to Save its Magazines
Challenge by the U.S. against Canada
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
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.
- Patents on Plant Varieties: Advancing
the U.S.-Style Patent System
Challenge by the U.S. against India
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
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.
- The Burma Case: Human Rights Affected
by Finance and Investment
Challenge by the European Community (EC) and Japan against the
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.
These are some of the more controversial
provisions that are currently being considered, or may soon come
under consideration at the WTO.
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.
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.
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.
- Free Trade in Wood Products
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.
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."
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.
- The Computer Industry and E-Commerce
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