WTO: The Challenge Ahead 

Dr. Moeed Pirzada * 

This paper does not claim to be scholarly; it is beyond the scope of this attempt to give exhaustive treatment to the many issues that confront WTO. However, to support its principal argument — that WTO is being used to advance the interests of the few at the expense of the majority — it focuses in some detail and depth on two of the thorniest issues; efficacy of the Dispute Settlement System and the Antidumping Laws of the developed economies which were incorporated into the legal framework of WTO as the “Uruguay Round Antidumping Agreement.”

 

From GATT to WTO

Towards the end of Second World War, when new global economic architecture was being defined by the victorious allies at Bretton Woods, by creating the twin structures of International Monetary Fund (IMF) and World Bank (WB), a third lesser known but equally important international organization by the name of International Trade Organization (ITO) was also conceived. Though ITO was an American idea but US administration, after negotiating and signing for ITO at Havana, could not win ratification for it from the Congress. GATT, that had already been concluded, thus emerged not by design but by default as the central focus for coordinating trade activity among nations. [2]  

GATT an Unexpected Success Story

GATT was directly based on a chapter of ITO designed to cut tariff rates. [3] Its implementation did not require new authorization in US law. Though GATT was an essential part of the ITO charter and needed the latter’s institutional framework for implementation, it nevertheless was available as an alternative to the ITO as a whole. It is important to contrast that the single package undertaking that at the moment characterizes the accession to WTO and was of great significance to the debate on Chinese entry was absent at that time. So, what turned out to be GATT’s institutional weakness four decades later, was in fact its strength in 1948, which facilitated the whole process. 23 countries entered bilateral negotiations, on a product-by-product basis, signed 123 agreements cutting tariffs on more than 50,000 items. Concessions derived by one country on a product were generalized to all other members. These countries constituted half the world trade and their agreements reduced the average tariff by 35 per cent. The “general clauses” of GATT prevented these countries to use any quotas or domestic impediments to reduce the impact of agreed upon tariff cuts. There was no talk of import controls, foreign direct investments, cartels, commodity price stabilization or industrialization. It was a simple world with a clear agenda.

The bilateral negotiations formula practiced under repeated GATT rounds made unexpected progress in promoting trade and cutting tariff barriers across the whole range of industry. The global commodity trade in the first 30 years of GATT grew at an average of 8 per cent, almost double of the global production. It is possible to argue that by mid 70s tariffs were not a problem between industrialized countries. [4] Even in the developing world, tariffs were radically slashed. However, impediments cropped up, both in the developing and developed world in the form of non-tariff barriers. Also, the nature and dynamics of economic activity in the industrialized countries began to change and Foreign Direct Investments (FDI), services and competition policies started to emerge as important issues. GATT was conceived in a world beset by high tariff barriers and suffered from serious institutional weaknesses. It never had a regulatory mechanism that could be applied for enforcing compliance to agreed upon national commitments. Due to these inherent weaknesses, it had little potential for achieving success in newly emerging areas of business activity. The need for further progress to look beyond the static tariff reduction arrangements was often felt. However, in the end, it was the neo-protectionism associated with the oil shocks and international economic imbalances of the 70s that prompted the world towards the famous Uruguay Round that finally led to the creation of WTO. [5]

 

Uruguay - A US Initiative

Once again Uruguay Round was mainly a US initiative that sought to increase access to foreign markets for US suppliers. On a more fundamental level, it was also an attempt to bring GATT up to date by extending its coverage in agriculture and services and to remedy shortcomings in areas like intellectual property and foreign investments-concerns that were becoming increasingly important for US businesses by that time. The agenda of this round, launched in 1986 in Punta del Estee, bore clear fingerprints of a multifarious coalition of US industries. [6]   This marks the beginning of the era in which US businesses took lead in pushing forward the trade agenda. This powerful coalition of business interests has subsequently played the most important role in shaping the economic relationship between US and China.

 

Achievements and Failures at Uruguay

Stiglitz argues that the Uruguay Rounds had three main achievements: One, creation of WTO as an international organization to oversee the regulation of trade activity; Second, an empowered Dispute Settlement System; and third, widening the scope by identifying new issues. The list of failures is, however, much longer. The main areas where Uruguay betrayed the hopes of a forward march were:

 

a.        Agriculture; that remained riddled with protectionism;

b.       Services; that received a very selective treatment;

c.        Intellectual Property; also received an unbalanced treatment;

d.       Non Tariff Barriers; especially dumping (Anti-dumping Agreement - ADA) and Countervailing Duties (CVD).

 

Overall, the agenda reflected the interest and concerns of the developed world and the developing countries were either cajoled or muscled to move along. [7]

In this section we intend to examine Creation of WTO, Dispute Settlement System, and Non Tariff Barriers (NTB), focusing on antidumping laws and countervailing duties (CVD).

 

WTO

At the end of 1994, there was no international organization that dealt with trade issues between countries. For almost 50 years, the international trading system had functioned without such an organization: under the aegis of the GATT, the rules of game had been developed and respected. But GATT was created by bilateral agreements among trading nations and it neither had any institutional structure nor any international standing of the IMF or the WB. [8] At Uruguay, international trading system won its first concrete structure that was capable, at least in theory, of enforcing the mandate that was entrusted and in that respect it was a giant leap forward.

 

Dispute Settlement System

Adoption of a system under Dispute Settlement Understanding (DSU), has brought a legal revolution. It represent not only a bold step forward from the workings of GATT, but also promises an enforcement mechanism that has never been available to any international organization. The forward looking approach DSU now provides in terms of laying down detailed procedures to obtain compliance rather than simply declaring a conduct as illegal, is a major step ahead in international law. It should not surprise us if a horizontal desire to emulate these procedures is gaining strength. A brief examination will clarify.

Under DSU, unlike GATT, it is no longer required to build a consensus of all WTO members to move from one step of the process to the next. The establishment of a panel, the adoption of the panel, Appellate Body Reports, and the authorizations to retaliate occur automatically unless there is a consensus against it. [9] DSU has transformed the GATT’s positive-consensus rule into a negative one. As a result, the WTO dispute settlement process is not only compulsory, but also virtually automatic. This novelty should be appreciated. It allows politically sensitive cases to be pursued and it protects weaker WTO members that previously were either unable or insufficiently daring to muster a consensus in support of their complaints. [10] As of February 1997, there were a total of 68 complaints initiated under the new dispute settlement process. That is two or three times the normal rate of applications for dispute settlements, as witnessed in the later years of the GATT. Perhaps, this is a tribute to the new process. [11]

 

WTO Law — At the Cutting Edge of Globalisation

The elaborate enforcement provisions of the Dispute Settlement system — with the option of counter measures — is a step ahead of the International Court of Justice (ICJ), and other international enforcement mechanisms. It provides the most developed enforcement regimes in the international law. Though ICJ provides for cessation of a wrongful conduct and even reparations, but has no mechanism to enforce this secondary legal obligation upon the state causing the misconduct. [12] Rules applicable to the ICJ do not foresee or address the problem of what to do in case of non-compliance. The award of remedies other than damages by international arbitral tribunals is extremely unusual. [13]

 

Is Dispute Settlement Working?  

Despite proliferation of substantive WTO rules, coupled with an extensive legal framework for Dispute Settlements, remedies prescribed (compensation and retaliatory measures) are not achieving the desired goals of compliance to the initial recommendations. Problems can arise from the very first step of DSU. Mavroidis argues that practice has shown that with two notable exceptions, most panels even do not go beyond the rather innocent stage of recommendations. [14]   Suggestions are rarely given. It is probably due to the institutional nature of the panels. Governmentalists who dominate most panels are men of practical considerations and are sensitive to the political sensitivities and realities. Their practical considerations disfavour remedies that can rock the boat. WTO can be rocked rather easily. Even a recommendation against a major player (for instance, US or EU), in the political realist’s argument, is too much of an intrusion in national sovereignty. [15]

In the 30 cases that have lead to the adoption of dispute settlement reports in the WTO, the enforcement tool of last resort-counter measures has been invoked five times. [16] Joost argues that this relatively frequent recourse to counter measures and compliance procedures suggests that the practical enforcement of WTO rules through dispute settlement may be too arduous.  “Time is ripe for a critical review of the WTO dispute settlement system, especially its enforcement mechanism and the remedies it provides.” [17] The question to be asked is, will it be taken up in the new round?

 

The Strong Shall Rule?

Mavroidis argues that the effectiveness of the WTO remedies depends upon the relative persuasive power of the WTO member threatening with counter measures. [18] Joost amply supports Mavroidis, “Would it not be difficult in practice indeed — even counter productive — for say Burkina Faso or Estonia to take counter measures against United States or the European community?” [19] The same will hold true for most developing countries (for instance Pakistan and Bangladesh) dependent upon development aid, technical help and credit facilities from EC and US. Any counter measures by such countries can and will provoke retaliation in non-WTO related fields. In the end, fact remains that members may be equal in the eyes of the WTO law, but not in the practice of WTO reality. [20]

 

Antidumping — An Administrative and Non-Tariff Barrier   

Finger argues that Liberals in Canada in 1904, legislated antidumping laws to specifically protect domestic steel industry from the predatory pricing by US Steel [21] and Wilson administration in 1916, pressured by tide of anti-German feeling, at a time when they did not afford tariff revision, created the Antidumping Law of 1916. It bears remarkable testimony to the US influence in shaping GATT/WTO that a domestic US law was later incorporated into Uruguay Round Antidumping Agreement more or less in the same language. It can be safely argued that the initial law targeted predatory pricing. However, the procedure that evolved over the years, in practice moved in a direction where predatory pricing can no longer be distinguished from innocent price differences that can occur due to reason of cost efficiency across an increasingly diverse global economy. [22] David Palmeter is quoted by Finger, [23] referring specifically to the current US practice, that is covered by GATT, “rather than being a price discriminator a dumper is more likely the victim of antidumping process that has become a legal and administrative non-tariff barrier.” [24]

 

Antidumping: Is there an Economic Rationale?

Antidumping has not found much sympathy in the economic literature. Almost all economists are unanimous in condemning dumping as neo-protectionism, which is not only injurious to the exporting country markets, but also to the consumers in the importing country. From an economist’s point of view, antidumping can find justification only in three situations; international price discrimination, predatory pricing or intermittent dumping. However, the preponderant economic literature finds the antidumping laws of US or the Uruguay Round ADA not equipped to check these issues. [25]

Two kinds of economic arguments are advanced against domestic price discrimination. One, market out put will decline when monopolist switches from a single price policy to discriminatory price policy, [26] and second that price discrimination imposes social costs on the society. [27] However, there is no consensus among anti-trust scholars on the question of prohibiting domestic price discrimination. [28]

 

Whom does Dumping Hurt?

However, even if there were any valid and accepted justifications for prohibiting domestic price discrimination, dumping is not attracted by them. Dumping has economic effects altogether different from domestic price discrimination and cannot be treated as an analogous issue. A seller only dumps if it charges a lower price to its export market customers than it charges to its home market customers. Therefore, unlike domestic price discriminators who create both a high price and low price markets in the country where they are operating dumpers can only create a low price market in the country where they are exporting. [29] Importing country in the case of dumping benefits from lower prices that increase the consumer surplus albeit at the expense of producers surplus. However, when the importing country imposes duties to raise the price to the level of prices in monopolist’s exporting country, it not only achieves supra-competitive prices for consumers in the exporting country but also creates a net loss to its own economy. The losses to consumers will almost always outweigh any gains to producers who are thereby protected. [30] This is borne out by empirical evidence. It has been estimated that the removal of ADD and CVD orders in 1991 would have created a welfare gain of $1.59 billion in that year. [31]

 

Antidumping: So it has an Economic Rationale?

We can see that economics’ literature advances little if any support to the rationale of anti-dumping for the domestic welfare. Even if we justify some altruistic motives for protecting the abuse taking place in dumpers monopolists market, there will be little rationale for punishing domestic consumers with high monopolistic prices. In the changing context of international trade where global markets need to be protected as a whole, dumping will sound even more out of place. WTO officials are, however, giving a revisionist view of the economic rationale of antidumping. They argue that international price discrimination is due to ‘asymmetrical market access and economic distortions’ in the monopolist’s export market and the antidumping laws are required to redress these balances. [32] However this line of reasoning is not supported by serious economic literature. [33]

 

What are we Fighting? Price Discrimination or Predatory Pricing?

Economic evidence points out that only and only deliberate predatory pricing offers a rationale for antidumping laws. As pointed out in the very beginning of this paper, it was also the spirit behind the initial legislation in Canada and US. However, economic literature, though alive to the threat of predatory pricing and intermittent dumping, is not convinced that they can occur frequently or regularly to justify an arcane and obscure set of generalised antidumping laws in place. Anti-trust literature supports economics when it argues that predatory pricing is not an effective means of achieving market power. [34] Economic theory suggests that systemic below cost pricing is infeasible and irrational unless some structural conditions are present. So predatory pricing attacks can take place intermittently and episodically but unfortunately the current regimen of antidumping laws available in the Uruguay Agreement are ill designed to fight such attacks of predatory pricing. They end up authorizing duties on goods priced at non-predatory prices. Non economic concerns related to antidumping laws such as issues of distributive justice and communitarian impacts of low priced goods can be more appropriately dealt under safeguard regimes or better still under the domestic trade adjustment assistance programs. [35]

Antidumping laws can be best reformed by creating a supranational or harmonized anti-trust regime, which can penalise predatory pricing without punishing non-predatory price discrimination. The net argument is that we need to distinguish and differentiate between price discrimination that takes place due to natural market adjustments and the deliberate price discrimination that is predatory in nature. EU has already made a serious attempt to incorporate antidumping laws within the broader framework of EU competition law. However, we will not argue for emulation, as EU competition policy not only eradicates predatory price discrimination but also constrain price discrimination of all kinds. [36]

A more modest approach of reforming and harmonizing anti-trust laws under the broader aegis of GATT will be appropriate. The 1998 protocol signed between Australia and New Zealand, is an attractive model. This understanding replaces the antidumping laws between these two countries with harmonized provisions in their competition laws to fight the abuse of dominant position. Warner has recently proposed a bilateral anti-trust regime for US-Canada trade. [37] Trebilcock and Howse argue that such a regime can be developed and implemented multilaterally through a GATT cross border predatory code, which would require signatories to harmonize their domestic anti-trust laws in line with the code, in very much the same way that at present the domestic antidumping laws must conform with the GATT antidumping agreement. [38] An alternate approach can be to preserve the antidumping laws on formal level. We can then add harmonizing provisions that will incorporate predation concepts into these regimes. That can include specific tests for predation or abuse of dominant position in the export markets.

Now, since US antidumping laws are up for negotiation in the next WTO round, [39] we can hope to move in this direction. Success in reforming the antidumping regimens may radically curtail one of the major forms of new protectionism. Legitimate concerns about the domestic impacts of surges of low priced imports can be dealt with through a well-conceived and structured multilateral safeguard regime. [40]  

 

Next WTO Round: The Challenge Ahead 

            Stiglitz argues that to make any meaningful progress the next round must satisfy three conditions:

 

a.        Comprehensiveness; should broach new subjects and revisit old ones where agreements were achieved in less than transparent fashion;

b.       Fairness; if negotiations are viewed as unfair change will be resisted;

c.        Political success; winners must emerge out of the process to play a pivotal role in implementation. [41]

 

                It is also important to have a balanced agenda for negotiations. An unbalanced agenda will lead to destruction of confidence in the trade liberalization, undermine the reform movement, and will seriously erode the confidence in the developed western world’s moral leadership. Uruguay Round left Sub-Saharan Africa worse off and whereas role of developing countries grew in international trade, their share of exports is one third and in exports of services is a bare one fourth of the international transactions. A repeat performance will not add to the process of building confidence in globalisation.

 

What Happened at Doha? 

                Three observations are important to our analysis. First, Doha Ministerial Declaration is only an agreement for multilateral negotiations and not an agreement in itself. Second, the declaration establishes a broad based agenda for multilateral negotiations that includes, in addition to agriculture and services, new issues like investments, competition policy, and environment and a limited range of institutional issues mainly focusing on the reform of DSU. Third, the countries have agreed that Doha negotiations will be a single undertaking. [42]

                Multilateral negotiations that will now follow, (started from January 2002) will in many ways determine the fate of the unaware citizens living in countries like Pakistan, India and Bangladesh, where even at best the middle classes have limited understanding of what is happening. Developing countries in general do not have the capacity or the requisite technical understanding to negotiate these complex and far-reaching agreements. Even the institutions responsible for enforcing the decisions of such multilateral negotiations have, so far, due to severe resource constraint, developed limited ability to understand the implications or to contribute in processes of decision making, at a time when it really matters.  The cost of current trade agreements is already being counted in people's lives. Unless the situation is addressed, on a revolutionary basis, countries and societies like Pakistan will further suffer.

            The preliminary agenda decided upon in Doha expressly excluded only one subject, ‘trade and labour’ and to that extent it was a major victory for the developing countries. Declaration also established a two stage process in which negotiations on so called Singapore issues, such as, investments and competition policy will not begin until after the WTO ministerial somewhere in fall 2003. Schott forcefully argues that this is also a kind of concession to developing countries who first wanted to make sure that the initial thrust of discussions remain on the traditional market access issues - on which the developed world has not already fulfilled its commitments reached at Uruguay. [43]

                But the overall perspective depends upon who you are listening to. Mainstream US media no doubt paints a very optimistic picture. For instance Wall Street Journal (WSJ) comments, “In a landmark shift Europe and US also agreed to put the rights of poor countries seeking to obtain cheap medicine above the rights of multinational drug companies seeking to protect their patents.” [44] Sounds so good? But Bello and Mittal point out that, “The resolution of the Trade Related Intellectual Property Rights (TRIPs) and public health issue is being trumpeted as a victory for developing countries. This is exaggerated. While an attachment to the declaration does recognize that there is nothing in TRIPs that would prevent countries from taking measures to promote public health, there is no commitment to change the wording of the TRIPs agreement. This is a serious flaw since TRIPs as it is currently written can serve as the basis for future legal challenges to countries that override patents in the interest of public health." So while on the surface there has been some positive wording, underneath, the root issues are perhaps still there. [45]

                Similarly, the language on the phasing out of agricultural subsidies is watered down owing to the strong objections of the EU. There is no commitment to an early phase-out of textile and garment quotas because of the strong resistance of the US. The demand for a ‘development box’ to promote food security and development which was being pushed by a number of developing countries was completely ignored. Finally the Doha declaration eliminates the reference in the draft to the International Labour Organization (ILO) being the appropriate forum for addressing labour and trade issues, which leaves the door open for the WTO to assert its jurisdiction in an area where it has no authority or competence. [46]

                The agreement to include antidumping laws in the talks was fiercely resisted by the US steel industry, which frequently uses these laws to combat foreign competition. At Doha, US Trade Representative, Robert Zoellick, put ADD on the table but he changed his tone, when he gave his briefing to US Congress on hearings on fast-track authority for President. Since then, Bush administration has won the fast-track authority from Congress. But after the recent slapping of duties on European Steel, it remains open to be seen that how US administration will deliver on the issue of antidumping duties - to live up its commitments at Doha.

Given these contradictions from the very beginning, this ongoing round will test the intelligence, imagination and sincerity of the international community to shape a compromised global response that can involve the teeming billions of the developing world into the process of globalisation as equal partners rather than the helpless victims of an elite club. It may help us to move beyond the haunting memories of Seattle, Genoa, and perhaps we may say, September 11^th. Pentagon may not win the war on terrorism but a successful and sincere multilateral negotiation can. Herein lies the challenge. n