Can multilateral trade work for the poor?

Protectionism, self-reliance and village republics are not enough to lift 1.3 billion of the world’s poor out of absolute poverty. There is sufficient empirical evidence to demonstrate that trade can be a powerful catalyst for poverty reduction, that free trade with fairer policies will benefit the world’s poor more than aid or charity. The problem is that World Trade Organisation negotiations and global trade are far from free and fair, with the balance skewed in favour of powerful trading blocs like the US and EU and against poorer nations

The recent collapse of the Doha Round of trade talks presents a dilemma to both champions of free trade and opponents of free trade. For supporters of free trade and multilateralism, the World Trade Organisation (WTO) provides the ideal framework for relatively unrestricted movement of goods and services, which will free markets, strengthen competition, spur innovation, and trigger growth and development around the world. Its apparent failure represents the undoing of years of progressive global integration and the success of protectionist governments and far-left outfits. To them, any doubts cast over the efficacy of multilateralism in reducing poverty are misplaced — free trade will cure all! They fear that repairing faith in multilateralism will take years, and alternatives such as Free Trade Agreements (FTAs), also known as Preferential Trading Agreements (PTAs), are a poor second choice.

For opponents of economic globalisation, the WTO is the epitome of the West’s neo-colonial agenda, the greed of transnational corporations, and the perpetration of the developing world’s economic dependence. To them, the WTO is the rich world’s negotiating range where developing countries are enmeshed in unfair trade agreements that diminish the policy space for national governments, open up domestic markets to the dumping of subsidised foreign goods and limit the access of producers from developing countries to rich-country markets. The WTO represents a growing web of binding agreements that threaten to stretch beyond regulating goods and services, to controlling basic services and traditional knowledge.

Opposing the WTO has served both as a rallying point and a profession for thousands of campaigners and advocacy outfits in the North and South. Now that the talks have actually stalled, most anti-WTO campaigners find themselves without a popular battle cry or answers about the immediate future of world trade.

Understanding the WTO

This crisis of purpose and surplus spare time that is beleaguering both ends of the ideological spectrum raises interesting questions. Firstly, what would the fence-sitter’s view on the WTO be? To understand whether the WTO is mostly good or evil, one needs to take a closer look at its structure and founding principles.

The WTO can be seen, simplistically, as the successor to the General Agreement on Tariffs and Trade (GATT), a trading system in existence since 1948 that provided rules primarily for trade in goods. The Uruguay Round (UR) of GATT negotiations (1986-1994) led to the creation of the WTO and saw its mandate expand beyond goods to cover trade-related aspects of intellectual property and trade in services. With the stated goal of helping producers of goods and services, exporters and importers to conduct their business, the WTO provides a forum for its member governments (149 at present) to negotiate trade agreements. While WTO agreements have enabled the liberalisation of trade in agricultural and manufactured goods, they also have rules to impose barriers where national and public interests are threatened.

The WTO provides a rule-based framework based on agreements negotiated by governments that are binding in nature. Whether there is equity of negotiating capacity amongst member countries is a frequently debated topic, but it can be accepted that the WTO agreements provide a transparent and predictable set of rules for individuals, firms and governments. The WTO follows the ‘one country, one vote’ principle, where the weight of each country’s vote is the same, unlike many other multilateral organisations. It does not, for instance, have a Security Council with veto powers! It also has a dispute settlement process that facilitates the settlement of differences on trade issues between countries, with retaliatory powers under a neutral process and established legal framework. This new dispute settlement mechanism that was agreed upon during the UR was a significant advancement over the dispute mechanism enshrined in GATT. In fact, the dispute settlement mechanism in the WTO is considered the most advanced dispute resolution mechanism in international law.

The legal framework of the WTO is a lawyer’s dreamland. The legal text, which has nearly 60 agreements, annexes, decisions and understandings running into thousands of pages, falls into several categories. At the highest level, it has ‘broad principles’ such as GATT (goods), General Agreement in Trade and Services (GATS) and Trade-Related Aspects of Intellectual Property Rights (TRIPS). Further, it has extra agreements and annexes for specific sectors and issues, and detailed ‘schedules’ of commitments made by individual countries on products and services allowed into their markets. At the narrow end, it has ‘plurilateral agreements’ — like the ones on civil aircraft and government procurement — that are agreements that do not have the approval of all WTO member countries. These are further underpinned by the dispute settlement and trade policy review mechanisms that settle conflicts and ensure transparency, respectively.

This legislative framework of the WTO, which the voluminous legal text embodies, has some fundamental principles underlying it. The WTO seeks to promote trade without discrimination, whereby countries cannot discriminate between trading partners (all partners get Most Favoured Nation (MFN) status) and treat foreign and national products, services or persons equally (national treatment). It seeks to promote progressive liberalisation through negotiations that will contribute to the lowering of tariff and non-tariff barriers, and provide longer periods to developing countries to fulfil their obligations. It seeks to make trade more predictable by encouraging countries to ‘bind’ their customs tariffs for goods and market access commitments for services, removing quantitative quotas for imports and making trade policies transparent. Finally, the legal texts are also meant to create a set of rules that enable open and fair competition. Read more