The Institutional Environment: The World Trade Organization

1. The Institutional Environment:The World Trade Organization Geoffrey Hale Political Science 3170 The University of Lethbridge October 12, 2010

2. Outline • What is the WTO? • Short History • Purposes • Organizational Structure and Governance • Facts, myths, and theoretical insights.

3. What is the World Trade Organization? • A multilateral organization, successor to the General Agreement on Trade and Tariffs (GATT) – an intergovernmental treaty (not formal organization) • “Single institutional framework for world trade”, including: • “modified GATT” • “General Agreement on Trade in Services” (GATS) • Agreement on “Trade-Related Aspects of Intellectual Property Rights” (TRIPS) • “Rules and Procedures Governing the Settlement of Disputes” • “Trade Policy Review Mechanism” (surveillance process) • assorted Plurilateral Trade Agreements

4. WTO – A Short History • Post-Second World War predecessor – the GATT • 1947 -- 23 countries conclude first agreement (effective 1/48) • Successive trade “rounds”: Torquay (1951), Geneva (1956), Dillon (1960-61), Kennedy (1964-67), Tokyo (1973-79) • Negotiation of Multi-fibre Agreement (MFA) on textiles as “managed trade agreement” within GATT. • Uruguay Round (1986-93)  leads to creation of WTO (1995) • WTO Sub-Agreements • Information Technology Agreement (1997) – 40 countries • Accession of China to WTO (2001); Doha Round launched. • Textiles and Clothing Agreement replaces MFA (2005)

5. Purposes of WTO • Oversee ongoing development of “rules-based” (vs. “outcomes” or “results-based”) trading system  technically, a “trade policy exchange market” • Engage and attempt to coordinate domestic (non-tariff) policies that have impact on trade. • Key principles • Non-discrimination among signatory nations • Most-Favoured Nation (MFN) – “a product made in one member country should be treated no less favourably than a “like” good that originates in any other country (limited exceptions for regional agreements, Article XIII exemptions) • “Once negotiations concluded with one country, the results extend to all” countries within the relevant categories. • National Treatment – “foreign goods should be treated no less favourably, once having passed national borders, should be treated no less favourably than domestic goods with regard to domestic taxes and regulations”

6. Purposes of WTO • Key principles (continued) • Transparency – information sharing among member countries • Applies to WTO and national trade regulations, administrative rulings • Supplemented by multilateral “surveillance” – published reports on trade policies of individual countries (through Trade Policy Review Mechanism). • Accountability – enforceable commitments • Carried out through terms of tariff “bindings”, intergovernmental consultations, and dispute resolution processes among governments (not private entities) • Flexibility • Safeguards (against “trade injury”), National Security rules, non-economic objectives (e.g. health, environmental policies), trade remedy measures (e.g. anti-dumping; countervailing duties against subsidies)

7. WTO Governance Structures • Headed by ministerial conference of all 153 members • H&K notes limited utility of committee of 153 in negotiations when most issues determined by bargaining among larger powers or coalitions of nations • Key (informal) steering group in negotiations: the G-6 • Australia (for Cairns Group - 19) * Brazil * European Union • Japan (for self, G-10 ag importers) * India * United States • plus other regional coalitions that emerge over time. • Major non-members • Russia; Iran; Iraq; several ‘post-Soviet’ countries; Serbia; several Arab, African countries; a few smaller, land-locked Asian countries; • General council – composed of WTO staff, headed by Director General, delegations from member countries • Subordinate councils (GATT, GATS, TRIPS) + specialized sector and topical committees (Figure 2.1 in H&K) • H&K – “very large, dispersed network comprising official representatives of members” and their home country counterparts in central agencies and relevant line departments (e.g. trade, agriculture, environment) • Overlap with UNCTAD, WIPO, ILO etc.

8. Role of WTO Secretariat (professional staff) • Secretariat • Provision of technical, logistical support to members • Preparation of research reports, background documentation. • Minimal power to take policy initiatives. • Support work of dispute resolution panels and related appellate body – which function independently from WTO. • Director General • Limited direct authority, but serves as broker among national interests  “guardian” of WTO processes. • Senior trade officials (1948-95); typically political officials since 1995. • Pascal Lamy (since 2005) – former EU Trade Commissioner (1999-04), Chief of Staff to EU Commission President Jacques Delors (1985-94) • Deputies from Chile, U.S., Rwanda, and India. • Previous DGs from Thailand (2002-05); New Zealand (1999-02); Italy (1995-99); Ireland (1993-95); Switzerland (1968-80, 1980-93); UK (1948-68).

9. Other major governance issues • Budget – distributed in proportion to member countries’ share of global trade – EU > 40%; US: 13.5%; China: 5.9%; Canada 3.36% • Total Budget - 189 MM CHF  $C 180 MM. • Decision-making • By consensus – not unanimity (except for changes to general principles guiding WTO), but not against opposition of major trading power. • Usually requires “log rolling” among major nations, coalitions • ¾ vote on interpretations of WTO rules, waiving disciplines against members. • Tw0-thirds vote for technical rule changes, approving “accession” of new members.

10. WTO Accession Process • Applicants must agree to WTO processes, make binding undertakings re: own trade and related policies. • Must negotiate entry with existing WTO members who may negotiate specific terms in return for approving accession. • Negotiations typically “asymmetric” • Negotiations have become more demanding with growth, diversity of existing WTO membership.

11. WTO Facts and Myths • WTO is intergovernmental organization • Members determine start (and terms) of new negotiating rounds • National governments broker level and terms of autonomy on specific rule clusters • Medium-sized and smaller countries benefit from “club rules” capacity to cooperate in rule enforcement • WTO is not international trade constitution – precluded by detailed negotiations on rules. • Still major power asymmetries. • Rule commitments are cumulative. • Medium-sized, smaller countries cannot compel compliance of large countries, although international coalitions help.

12. Other useful policy insights (per Froese) • Political institutions still matter as much as economic ones in trade policies • National / regional decision-making structures determine terms and context of participation, negotiating positions, especially of larger, medium-sized trading countries. • National sovereignty not incompatible with global governance • Governments still retain capacity for policy discretion within boundaries of international, regional agreements. • Policy “realism” heavily circumscribed by realities of interdependence for large, small countries alike. • WTO embedded within complex networks of international, regional and sectoral agreements with interconnected implications.