בחינת מעמדם והשפעתם של גופים כלכליים בינלאומיים בעידן הגלובליזציה - והפעם על ארגון הסחר העולמי .
מאת עו"ד איריס טרומן
International Financial Organization- By Iris Truman , Advocate, LLB. MBA & PhD Research student
Structure, Legal authorities and influence
Introduction
The WTO (World Trade Organization)
The establishment of the WTO has played a part in creating a new regulatory framework and environment for MNEs (multinational enterprises) and FDIs (foreign direct investment) to operate under. The WTO has contributed to a proliferation of international arrangements and a protective, permissive legal and regulatory environment for MNEs. On the other hand the MNEs are also influencing legal development in the field above through interest-driven lobbying of governments and IGOs (Intergovernmental Organizations).
The WTO is considered to promote a neo-liberal agenda but has in fact shown to be attentive to the need of environmental and social interest groups for monitoring and proposing alternative agendas in the forums of the WTO.
The WTO was formed in 1995, in the framework of the Marrakesh agreement, and succeeded the General Agreement on Tariffs and Trade (GATT) which was erected in 1947. The WTO has its headquarters in Geneva, Switzerland, and comprises 153 member states. The annual budget amounts to approximately USD 183 million (individual contributions of member countries are based on the share in the total trade conducted). The WTO houses a staff of 629 and the WTO Director General currently being Pascal Lamy. The three official languages of the WTO are English, French and Spanish..
Structure
The WTO has a secretariat whose responsibilities include: administrative and technical support for WTO delegate bodies, technical support for developing countries, trade performance and trade policy analysis, legal assistance in the resolution of trade disputes as well as help with accession negotiations and advice given to countries pondering accession.
The 153 member states of the WTO represent more than 95 percent of total world trade (117 of them are developing countries or separate customs territories). There are also 30 observer states, most seeking membership. The WTO is governed by a ministerial conference which meets up every two years, a general council which implements the conference's policy decisions (the general council is responsible for everyday administration) as well as a director-general who is appointed by the ministerial conference. The Ministerial conference is the highest governing body within the WTO. Both the General Council and the Ministerial Conference comprise all of the organization’s member states.
There are also councils, committees and sub-committees within the organization which administer and monitor member states’ compliance with agreements.
The aim of The World Trade Organization (WTO) is to liberalize, regulate and supervise international trade and is a framework for negotiating and enforcing trade agreements. The WTO trade agreements are signed and ratified by the member countries. The organization is to date the only global organization handling trade relations between states. The expressed aim of the WTO is to help exporters and importers of goods and services, as well producers, to conduct their business across borders. The overriding aim is to enable open up trade for the benefit of all member countries.
Additionally, it aims at reducing obstacles to trade and ensuring fair trade relations. There are currently 16 multilateral agreements (to which all WTO members are parties) and two plurilateral agreements (to which only some WTO members are parties).
Decisions within the WTO
Decisions within the WTO are consensus based and concern the following areas: dealing with obstacles to trade, governing conduct of trade, monitoring and administering compliance with WTO agreements as well as individual trade policies of respective countries, safe-guarding transparency of trade agreements, settling disputes between member states with regards to the agreements, developing necessary know-how of government officials in trade matters, reviewing application processes of non-member states, conducting research on trade-issues pertaining to WTO’s activities and educating the wider public on the WTO.
The WTO’s decisions normally require consensus among all member governments. All member states are represented in all councils and committees. Decisions are either taken by the ministers or by their ambassadors or delegates, in the various councils and committees of the organization, with the highest decision-making authority residing in The Minister Council. This decision-making process distinguishes the WTO from other major international organizations who delegate decisions to a board or a director/head. Henceforth the rules and regulations of the WTO are self-authorized and self-enforced on the part of the member states. No external financial coercing of a state to change a specific policy is therefore possible, like is the case with other multinational agencies. Positions taken by governments in the WTO are however usually influenced by everyday commercial and industrial activity and companies’ advice or lobbying efforts.
Between the ministerial conferences the everyday work is handled by three bodies: The General Council, The Dispute Settlement Body and the Trade Policy Review Body. The General Council acts on behalf of the Ministerial Conference while the Dispute Settlement Body and the Trade Policy Review Body settle disputes between member states and oversee their trade policies.
The Disputes Settlement Body is a mechanism which utilized when consultations/negotiations fail to reach a settlement within sixty days. A panel is established by The Disputes Settlement Body to resolve the dispute and the resulting panel report is adopted by the body unless an appeal is submitted by one or both of the concerned parties (in the case of both parties appealing the panel report it is considered to be a case of "consensus against adoption". The dispute is then treated by "The Appellate Body" which produces a report within sixty days, a report adopted by The Disputes Settlement Body within thirty days, unless there is a consensus among the disputing parties against adoption. If one of the parties fails to comply with the recommendations of the panel report within thirty days the former is obliged to pay mutually acceptable compensation unless a request for suspended obligations on the part of the opposing party is raised.
The Disputes Settlement Body and the Appeal Body has been very active in the workings of the WTO and the latter has especially had a significant impact on international trade law at large.
There are a whole range of bodies reporting to the General Council: three higher-level sub-ordinate councils, The Council for Trade in Goods (with 11 subject-specific committees and the subordinate Textiles Monitoring Body), The Council for Trade in Services (with subsidiary bodies dealing with financial services, domestic regulations, GATT rules and country-specific commitments), The Council for Trade-Related Aspects of Intellectual Property Rights, six committees who function as working committees dealing with administration and overview as well as two bodies dealing with plurilateral agreements, i.e., agreements which are not signed by all member countries.
The smaller bodies above function as discussion forums for informal consultations where consensus and agreement is reached concerning the larger policy issues. The smaller groups are considered to easier facilitate consensus-reaching. These proceedings may be held without the full participation of all member states but rather with the concerned members alone, while keeping non-participants informed of the proceedings. Another form of informal consultation is the ones being held between Heads of Delegations, but here all member states are represented.
There are Coalitions among member states in order to facilitate bargaining power. A country may be a member of different coalitions pertaining to different areas of trade. Coalitions are also formed on the basis of customs unions, regional free trade areas and common markets.
The largest group is “the European Communities”, with 27 member states. The EU is a customs union and is a WTO member in its own right as are each of its member states. Less integrated economically but still part of a coalition are the countries in “The Association of South East Asian Nations” (the coalition comprises Brunei Darussalam, Cambodia, Indonesia, Malaysia, Myanmar, Philippines, Thailand, Singapore and Viet Nam).
Another coalition is The MERCOSUR, the Southern Common Market (Argentina, Brazil, Paraguay, Uruguay and Venezuela, with Bolivia, Chile, Colombia, Ecuador and Peru as associate members). Less unified coalitions are The North American Free Trade Agreement: NAFTA (Canada, US and Mexico), The African Group, the least-developed countries, the African, Caribbean and Pacific Group (ACP) and the Latin American Economic System (SELA).
The coordinators of these coalitions ensure that demands of transparency and inclusiveness are met. The general idea is that the breakthrough in negotiations is made in smaller settings while the formal decisions on the basis of these negotiations are brought to the digression of the entire member body.
Membership in the WTO entails rights and responsibilities which can be found within the security accorded to member countries by the universal trading rules. The responsibilities entail opening domestic markets to other member countries and abiding by the rules of the trading regime.
Only states or customs territories may accede to the WTO. There are four main stages in the application process:
1. The applying country has to disclose all aspects of its trade and economic policies which have a bearing on the WTO membership. These data are then examined by a working group responsible for processing the application.
2. Bilateral talks between the applying country and individual member states commence in order to find out what the applying country has to offer in terms of trade. These talks do not however license any discriminatory policies towards other countries who are not involved in the talks.
3. During this stage membership terms are drafted, where among other things schedules of implementation of commitments are stipulated.
4. A final draft of the research done above and a list of commitments are presented to the WTO General Council or The Ministerial Conference. If two thirds of the member countries vote in favor of accession the new member can accede to the organization. The accession usually has to be ratified in the new member country’s own parliament before this process can be fully completed. Countries observing accession negotiations are called “WTO observers”.
Influence
The WTO’s guiding principles are open borders, the most-favored nation principle, transparency and non-discriminatory treatment.
The most-favored nation principle is a fundamental one which stipulates that you cannot discriminate between different member countries, such as granting only a specific nation certain privileges to your market. If you lower a tariff rate for a specific product e.g., you have to do it universally, i.e. to all member states. This principle is valid in regards to goods, services and intellectual property rights (the three categories of international trade). There are some very limited exceptions to this principle such as granting developing countries special access to one’s market, discriminating in the case of services (in some cases) as well as discriminating against an already discriminating country.
The WTO firmly believes that open international trade promotes sustainable development, increases individual welfare, reduces poverty and fosters peace and stability.
According to the WTO another non-discriminatory principle is the one of treating foreigners and locals equally. When it comes to goods, services and intellectual property, foreign and domestic products shall be treated in an equal fashion, that is; after a product has entered the market, which does not exclude customs duty tax on foreign products.
Lowering trade barriers is pivotal to encouraging trade and translates into actions relating to customs duty tax, tariffs, banning of certain imports or restricting import by quotas.
There have been eight rounds of trade negotiations since the first round which was held under the auspices of WTO’s predecessor GATT in 1947-48. One important achievement of these trade negotiations have been lowered tariffs on imported goods. Abiding by the principle of “progressive liberalization” the WTO accords a certain time of adjustment for countries to implement trade agreements signed by them, and developing countries are given even more time for this process to take place. GATT provisions, included in current WTO agreements, allow for special assistance and trade concessions for developing countries.
The WTO’s creation brought to reality, albeit in an updated form, the failed attempt in 1948 to create an International Trade Organization.
GATT brought into effect a more liberal international trading regime but still needed an overhaul. This was what led to the Uruguay Round, and later to the WTO. GATT was a provisional trading regime for a very long time, in fact from 1948 to 1994.
At first the intention was to create a third institution to handle the trade side of international economic cooperation, alongside the World Bank and the International Monetary Fund. Over 50 countries participated in negotiations to create an International Trade Organization (ITO) as a specific UN agency. Simultaneously, in 1945, 15 countries had commenced talks on binding and reducing customs tariffs. The outcome of these talks was a package deal of trade rules and tariff reductions which was signed in 1947. This led to the signing of the General Agreement on Tariffs and Trade with 23 founding members. The same countries negotiated the ITO charter. In the end they reached the conclusion that the International Trade Organization did not have to be created after the ratification process had encountered serious difficulties in some countries. GATT thus remained the only global instrument governing global trade until the establishment of the WTO in 1995.
One of the big differences between the Tokyo Round (1973 to 1979) and the later Uruguay Round was the universality of the adoption of the trade rules. In the Tokyo Round only a few states actually adopted the rules while in the later Uruguay Round all members of the trading regime, now called the World Trading Organization, committed to the trading regulations stipulated by the agreements (with the remaining exception of two cases of agreements pertaining to civil aircraft and government procurement).
So what caused the cessation of the GATT regime and the creation of the WTO regime? The GATT regime had been a success insofar as to the recognition of its importance for global trade and its growth. Henceforth the increasing numbers of members flocking to the organization.
However,with the economic recession in the 1970s and 1980s, governments were again prone to protectionist measures, something which undermined GATT’s efficiency. New forms of trade had arrived on the global arena and were not covered by GATT rules while other existing forms of trade had greatly expanded. There were numerous loopholes in some areas of GATT trade regulations being exploited. Some aspects of the institutional structure and dispute settlement system were found wanting.
A renewed multilateral trading regime was thus sought after and this eventually resulted in the Uruguay Round, the Marrakesh Declaration and ultimately the WTO. One concrete change was that the trading regime now included services and intellectual property and not only goods.
Approximately 75 percent of WTO members are developing countries and countries in transition to market economies.Many of these countries have liberalized their trade policy since the Uruguay round. Still, the WTO did allow for positive discrimination of poor countries by inducing more developed countries to positively favor the former by implementing market access commitments such as duty-free and quota-free imports from the poorer countries.
It is all about predictability when it comes to trade. It is extremely important for businesses to know what their opportunities are in a specific country. This predictability benefits the entire economic cycle, leading to increased investment, job creation, greater choice and lower prices for consumers etc. The WTO wishes to facilitate this process through predictability.
One way of increasing predictability is for a country to commit to abide by its “bindings”, i.e., the ceilings put on custom tariff rates. If the bindings are to be changed this has to be negotiated with other member states involved. In the Uruguay round the amount of trade was increased under binding commitments. Another way of strengthening predictability is to discourage quotas on quantities of imports.
According to the WTO, the organization is not committed to unbridled free trade but rather to open and fair trade. This is evidenced by the fact that the organization does allow for certain forms of protectionism such as tariffs. Free trade cannot come at the expense of fair trade as is evident in the WTO ban on dumping, a phenomenon in which a party exports at below cost to gain a market share.
Neo-classical economic analysis holds that any negative side-effects of MNE's operations may be restrained by means of global harmonization of regulation and legislation in issues such as taxation, environmental externalities and preserved competition etc, etc. Multilateral institutions would have to be established to enforce these rules of conduct. The former institutions would to a certain degree circumvent state's independent economic policies. The establishment of the WTO is a prime example of such an intergovernmental institution. There have been other attempts of creating regulatory internal institutions like the WTO, such as the abortive New International Economic Order (under the auspices of the UN).
However, even the WTO does not possess the legislative means to counteract privately constructed trade barriers, also called “state sanctioned private anti-competitive conduct”. The WTO can only sanction and prohibit governmental trade barriers.
According to the WTO, it strives to ensure fair trade in all areas. Generally speaking however, protectionism is bad for customers by not supplying them with the best products the market has to offer. And protectionist policies rarely work in any case. The rippling effect of many countries deciding to implement protectionist policies- such as government subsidies is the overall market becomes smaller and as a result economic activity is reduced. One of the main objectives of the WTO is therefore to prevent protectionist policies.
The governmental policy of offering incentives is aimed at attracting foreign investment when natural comparative advantages are absent. The policy of handing out incentives amounts to protectionism and distorts the workings of the international economy. One example is the detrimental effect the policy has on developing countries in that the latter do not possess the means to offer incentives. Investment incentives are not regulated by WTO agreements.
The Opposition
The above data has been draw mainly from statistical data which publishes by the WTO sources. However, some scholars who opposed to the process of globalization at large and the role played by the WTO, argues that all those agreements actually gave the WTO a mandate and power to dominate high and law income countries.
Paragraph 4 of Article XVI of the agreement creating the WTO, actually provides the WTO member of country to oppose to any law of other member country who might be an obstacle to benefit from the trade rules: “Each member shall ensure the conformity of its laws, regulations and administrative procedures with its obligations as provided in the annexed Agreements”. If there is a complain regarding the possibility that there might be susceptibility to a countries laws, it will have to prove to the WTO panel that certain restrictive provisions have been met, if not, it must adjust its own laws into the minimal international standards or be susceptible to trade sanctions or fines.
Country can also be sanctioned if it favor local investors over foreign, or do not protect patents or copyrights of foreign companies. The panel can also recommend that one country shall change its law accordingly. The WTO’s panel actually becomes the world’s highest court.
In that perspective, the WTO has legislative as well as judicial powers. GATT allows the WTO to change certain trade rules by two-thirds vote of WTO member representatives. The new rules become binding on all members. The WTO becomes, in effect, an unelected global parliament of trade lawyers with the power to amend its own charter without referral to national legislative bodies.
As it can be seen, the new WTO regime overrules the local laws and interest and the main beneficiaries from such conduction are the mega international corporations.
According to the opposed scholars, the statistical data published by the WTO is misleading, and in fact, protectionism and inequality in the treatment of trade in different countries by the WTO, varies.
For instance, 70 percent of the world trade carried by 40,000 mega international corporations and their 260,000 subsidiaries world wide. At least 30 percent of the trade exist within the corporations and their subsidiaries, and not as it seems, between different countries. For example, a company in one country operates a coal mine and sells out the coal to its subsidiary company which located in another country.
Furthermore, almost 90 percent of the mega international corporation centered their headquarters in the USA, Europe and Japan and have common interests with the strongest countries of the world.
Although the GATT-WTO is an agreement among countries, and opposition is brought by one country against another, the incentive for the opposition usually comes from the international corporation that considers itself to be disadvantaged by a particular law. For example, tobacco companies have repeatedly used trade agreements to fight health reforms intended to reduce harm from cigarette smoking.
The more extremes scholars argues that, the real function of the WTO is to block new regulatory initiatives by national and local government that conflict with international mega corporation and financiers and to enforce the existing rules regulating trade, corporation, and finance. For example, the WTO told Japan that its tax on bourbon whiskey produced in the United State was too high.
Canada was told it could not protect its culture by taxing U.S. magazines. India was told it could not provide its people with inexpensive generic drugs because this would be unfair to foreign drug companies that profit handsomely from branded products. The United States was told its law banning the import of tuna fish caught with methods harmful to dolphins would have to be changed.
Europeans were told they could not give an import preference to bananas produced by small farmers in the Caribbean. They were also told that until they provided conclusive scientific proof that they are harmful they could not restrict import of beef treated with growth hormones or genetically modified food products. In each case the WTO strive to over turn internal rules made by democratically elected governments in the interests of their citizens.
Critics claim that such agreements violate the rights of subfederal (local and state) government. For example, state and local government in the United States had no role in creating the North American Free Trade Agreement (NAFTA). Yet WTO rules require the U.S federal government to take all available actions (including enacting preemptive legislation or with drawing funding) to force subfederal compliance with WTO terms. A potential scenario in which this could happen is a U.S state’s law regarding food safety, for example, that is more restrictive than permitted under NAFTA terms. Protesters complain that such requirements are a direct attack on the rights and authority of subfederal governments.
Copyright © 2009, all rights reserved to Iris Truman
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