Over the last few years, the issue of the relevance of the World Trade Organization (WTO) has been raised in many quarters of its membership. The WTO is a system of multilateral trade rules which govern global trade for more than 160 countries. It is one of the Bretton Woods institutions, including the International Monetary Fund (IMF) and World Bank (WB). In a sense, the WTO is a legacy of the original Bretton Woods Agreement which included ideas for an International Trade Organization (ITO), and according to a publication, Bretton Woods Project (2005), “these lay dormant until the WTO was created in 1995”.
Like the other organizations in this system, the WTO has been under pressure for some time as nations negotiate to improve their economies through trade liberalization. There is a sense that the reality in the exercise of these agreements is somewhat different and perhaps more favourable to the developed members. Laura Dawson (2004) in a paper for the Centre for International Governance Innovation (CIGI), points out that the stated intention of the WTO agreements was “to provide a balance of rights and obligations that provide equity to all members, large and small, developed and less developed. In practice, of course, that equity is somewhat distorted in favour of the larger, better developed economies”.
The explosion of bilateral trade agreements, (usually referred to as the ‘spaghetti bowl of trade agreements’), outside the ambit of the WTO was one such pressure point, giving rise to the question of the relevance of the WTO. According to Maria Panezi (2016) in CIGI Policy Brief No. 87, the lack of relevance of the WTO is worsened by the lack of movement or deadlock of the Doha Development Round (DDR) of negotiations, which commenced in 2001. As she points out, “the DDR was supposed to place developing countries’ needs and interests at the heart of the work programme adopted in this declaration and continue to make positive efforts designed to ensure that developing countries, and especially the least-developed among them, secure a share in world trade commensurate with the needs of their economic development”. That promise of a rejigged system is yet to be made manifest.
In addition to the stalled DDR, a few decisions from the WTO, albeit correct within the multilateral rules and framework, left some developing country members impressed that the system appears not to be considerate of their special circumstances.
Caribbean countries have been badly bruised in the swift encounters with the dispute settlement arm of the WTO. For instance, the now famous “Banana war” between the EU and the USA was triggered to ensure the compliance of the UK to the MFN rules, ensuring that the UK affords the same preferences to banana producers from Latin American countries that housed American interests, to those provided to Caribbean banana producers. Notwithstanding the fact that Caribbean banana production comprised less than 1 per cent of world trade in bananas and that compliance to the rules in effect decimated the banana industry of the Caribbean, it appears that adherence to the rules was always going to be more important than the consequences of compliance.
According to Mlachila et al. (2010) in an IMF working paper WP/10/59, the value of the Windward Islands banana industry changed from approximately US$25 million in 1977 (approximately 12 per cent of GDP), peaked in 1990 at more than US$140 million (14 per cent of GDP) and dropped to US$40 million (1.4 per cent of GDP) by 2008. The industry was extremely important for the Windward Islands representing some 40-70 per cent of total merchandise exports for three of the four Windward Islands (Dominica, St. Lucia and St. Vincent & the Grenadines). The same IMF working paper estimated that the decline has been especially disastrous for Dominica where the banana export-to-GDP ratio shrunk from a peak of about 22 per cent in 1988 to about 1.5 per cent in 2008.
The region is not alone in these aforementioned perceived disadvantages. It appears that there have been a few WTO members which, prior to acceding to the WTO and the process of liberalization, were net exporters of a product and are now net importers of that same product.
For instance, Haiti was a net exporter of rice and is now a net importer of that product. A publication of Geographic Indications and International Trade (GIANT) (2004), speaks to Haiti once being a self-sufficient rice producer which experienced a decline centred on the adoption of trade liberalization policies that have rendered Haiti the least trade restrictive country in the Caribbean. As a result, the importation of cheap American rice decimated local production in Haiti.
Clair McGuigan (2006) in a publication Agricultural Liberalization in Haiti, also argues that trade liberalization in Haiti was pursued as part of its agreement with the IMF and WB and the results have been disastrous. Further, she asserts that the “increase in food imports as a consequence of lowering tariffs has been so dramatic that Haiti now imports more food than any other product”. McGuigan points out that as food imports increased, local agricultural production has fallen, which she argues, is closely linked to trade liberalization. Indonesia is another such example. It was once a net exporter of leather and leather products and is now a net importer of these same products.
The question raised is – was the WTO and trade liberalization promoted by the multilateral system to create markets for its original members? The issue of trade liberalization where WTO countries sought to reduce tariffs and, in a sense, improve market access for members appears to have created access for efficient and large developed and developing countries at the expense of the less efficient and smaller economies. One could argue that the market is responsible for the changes but it seems like the developed countries which continue to subsidize sectors in spite of the rules and have developed their economies through protective regimes for a long time are insisting that new and emerging economies should develop without that same protection.
In addition, the WTO does not recognize the already accepted, widely acknowledged United Nations (UN) nomenclature of Small Island Developing States (SIDS) as being different to the WTO’s small and vulnerable economies (SVEs). This grouping, although important, includes countries which, although vulnerable, certainly do not have the peculiarities of SIDS.
Recently and directly related to the rise to power of president Donald Trump, there appears to be a new dynamic in the trade policy formulation of the USA. This has been accompanied by the many trade wars sparked by Washington between the US and other major players including Mexico, Canada, UK and more recently China. The current trade wars have resulted from a violation of the multilateral trade rules, by the USA threatening, and in some cases, imposing tariffs on products being imported into the USA. While the imposition of tariffs is illegal unless notified within the confines of the multilateral rules, and the fact that these should not be trade restricting, it appears that the USA operates above the rules.
Further, it appears that the USA, under president Donald Trump has threatened to block the reappointment of one of the WTO’s four remaining Appeals Judges. According to a Reuters’s story of August 27, 2018, by Tom Miles, this confirms trade experts’ fears of a crisis in the system for settling global trade disputes. Perhaps this latest US strategy aimed at the WTO Dispute Settlement Body (DSB) is an attempt to destabilize the trading system and create an opportunity for the US to have its own way.
The international trading system and the rules governing trade are still relevant notwithstanding what appears to be a disadvantage for some members. Dawson (2004), referenced earlier in this piece, points out that “… any rules-based governance structure that attempts to reduce market distortions, and impose greater predictability on international commercial activity is better than none at all”.
The system is obviously not perfect, therefore members must continue to create alliances and move to carry on the reform of the system so that there is a greater sense of equity. The SIDS should push further for acceptance of the SIDS nomenclature using evidence to cement the special circumstances which cannot be adequately covered under the SVEs.
There is a perception and widely held view of some SIDS being classified as middle income based on GDP per capita and therefore, in a better position economically. The reality is that per capita income does not reflect the realities of SIDS and as such, this notion needs to be clarified with an evidenced based narrative. While rules are enshrined in the multilateral trading system, it cannot be that compliance is overriding, even to the detriment of the economies of some members. There must be a way to ensure that even as the rules apply to all, that special peculiarities are taken into consideration to ensure that all adhere and that special and differential treatment is afforded in special circumstances, so all will benefit.
The Shridath Ramphal Centre for International Trade Policy, Law & Services
Cave Hill Campus, UWI