SOYOUWANNA KNOW ABOUT THE WTO?

The civil disobedience that greeted the World Trade Organization (WTO) Summit in Seattle last December was on a scale unseen since the Vietnam War protests, and it was no less disruptive. The talks faltered after four days, with member states failing to agree on basics such as trade liberalization and leadership of the organization.

Implicit in the massive street protests was the question, "Is being in favor of global free trade compatible with having a social conscience?" To the demonstrators, ranging from unionized longshoremen to anarchists, from tree-hugging environmentalists to Pat Buchanan isolationists, the clear answer to this question was "no." Other than their strong distrust of the WTO, the demonstrators shared little common ground. Which leads one to wonder how the WTO became a lightning rod to so many disparate groups of people. Read on, as SoYouWanna explores the history of this controversial organization, and the fierce debate surrounding its economic policies.

1. LEARN SOME BACKGROUND ON THE WTO

Headquartered in Geneva, the WTO is a baby among intergovernmental organizations. It was created in 1994 to succeed the General Agreement on Tariffs and Trade (GATT), which dates back to 1948. After World War II, many nations thought it would be a good idea to create an international system based on rules, not brute force. Along with the United Nations, GATT was intended to preserve stability and help speed the world's economic recovery. The idea was that if nations negotiated trade rules together they would be less inclined to escalate trade hostilities by, say, bombing the other nation's major port city.

GATT member states learned to see their best interest was in submitting to the multilateral trade obligations. To that extent, the formalities of GATT prepared states for membership in the WTO. For instance, GATT allowed a state to retaliate legitimately in limited measure whenever another member persisted in breaching one of GATT's rules. States really liked this feature since it acknowledged their power to act. At the same time, since they could only act within the constraints of GATT rules, it gratified their desire to be seen as one of the world's law-abiding nations.

The retaliation feature was retained in the Final Act, the 550-page document governing the WTO. Signed in Marrakesh in 1994, the Final Act was the culmination of seven years of trade talks known as the Uruguay Round (there have been eight such "rounds" in GATT's history). Much of the Final Act covers traditional items of trade such as textiles and agricultural products. Befitting this era of globalization it also reaches new forms of commerce, many of which fall under the rubrics of "intellectual property" and "services." Services account for the majority of economic activity in developed countries (seventy percent in the U.S.). The Final Act's most touted provision is its Dispute Resolution Mechanism, the exact nature of which we'll discuss below in the pro and con sections.

Membership in the WTO is broadly inclusive. There are now 136 members and thirty more-most notably China--are currently petitioning for accession to the WTO. Members are separately categorized according to their level of economic development. Twenty-nine states are called Least Developed Countries (LDCs). These are nations such as Chad, Myanmar and Haiti. The rest are called Developing or Developed countries, depending on how they label themselves. To become a member, a state needs the approval of two-thirds of member states. WTO membership is not generally extended unless member states are convinced that the applicant is committed to free trade market reforms.

At the time of this writing, the WTO is considering China's case for membership. With the Clinton administration strongly behind it, it looks likely (just think how many potential Chinese consumers of our movies and software there are). Critics say that a nation with such a rotten record on human rights and the environment doesn't belong in the WTO. They want to condition WTO membership on political liberalization just as much as on market liberalization. Other commentators say that autocratic regimes are likelier to democratize if they are brought within the WTO fold.

So much for the WTO's background, let's get started on the arguments.

2. HEAR SOME ARGUMENTS IN FAVOR OF THE WTO

"In this era of rapid globalization, we need an international organization to smooth and enhance trade relations. The WTO is the best instrument we have for that purpose."

The Argument: Between 1950 and 1998 global exports rose eighteen fold, and global output six and a half fold. Globalization is a fact. We should all attempt to get the most from it.

The WTO's simple aims are to "restrict unfair barriers to trade and promote equal access to a rule-based trading system." In other words, the WTO encourages nations to liberalize their economies. They do this by removing trade quotas and subsidies to uncompetitive local industries, and by limiting public spending that leads to inflation and disproportionately affects the poor. Capitalism works best when unfettered markets set prices.

Nations benefit from increasing their levels of international trade. Developing nations and LDCs gain greater access to the markets of wealthier societies and foreign investment capital. Local economic sectors such as coffee and textile production then become infused with capital.

Foreign trade is a source of strong and consistent economic growth. Developing nations know that the way to escape grinding poverty is to join the world trading system, not to hide behind walls of protectionism. That's why many are WTO charter members. They need more property rights, not fewer, and more debt relief, benefits that flow from WTO membership.

Another benefit of the WTO is less apparent, though equally important. By stimulating world trade under a system of rules, the WTO helps fight government corruption. Businessmen transacting with greasy-palmed foreign officials have always been prepared to pay "surcharges" as a cost of doing business overseas. Globalization gives them more trading possibilities and thus alternatives to dealing with corrupt government officials. Corrupt countries become exposed and isolated, and their citizens may even be emboldened to rise in revolt. When a nation prospers, its citizens become less tolerant of corrupt and/or autocratic regimes.

The Response: Don't be misled. The "clear and simple" goal of the WTO is to enable rich nations to plunder developing nations.

Globalization can warp a nation's economic development, but the WTO won't admit this. It has the wrong prescription for developing nations. Restrictions on government spending, lowered corporate taxes, and privatization are too risky for countries with pressing health and education needs. For countries inexperienced with free markets, making them suddenly flush with foreign capital is a recipe for disaster. Hasty adoption of free market reforms made the chaotic mess that is modern Russia. It lowered financial controls before it could develop political institutions capable of containing corruption. In Albania, people unschooled in capitalism lost their life savings in pyramid schemes.

The WTO, IMF and World Bank act in concert to control the economies of entire countries. They restructure debt and oversee the monetary policy of developing nations according to the dictates of Wall Street. They euphemistically label their loan sharking activities "bail-out agreements." This is colonization by another name. It's no coincidence that deregulation of American banks occurred just before the Seattle WTO Summit. The banks' aim is to drive national producers into bankruptcy unless they pattern themselves after Western public corporations.

"The WTO's formal structure allows it to balance transactional efficiency with transparency and equity, and this makes it the best international organization for the job."

The Argument: WTO rules are made and ratified by member states. Contrary to rumor, multinational corporations have no role in negotiations. Negotiations are multilateral so no single nation dominates negotiations and decisions are reached by consensus. No nation is ignored. On the other hand, bilateral negotiations disadvantage small states because they can't combine into blocs to get more leverage. The gradual "round" method of negotiations is the best way to create consensus and good will conducive to smooth trade relations.

The WTO makes national trade policies more transparent with its Trade Policy Review Mechanism. If you have any doubts about the WTO's transparency (openness to public view), check out the WTO's website (www.wto.org). There you can download any WTO document.

The Response: The 550 page-long Final Act is only comprehensible to the lawyers and technocrats who drafted it. If the goal were really to simplify trade, such a lengthy document wouldn't be necessary.

A glimpse at the Dispute Resolution Mechanism gives the lie to the WTO's "transparency." A roster of potential panelists (of whom more than 90% are male) circulates. When a complaint is brought, three are selected from the roster to serve on a panel. The panel deliberates in secret. This panel may issue decisions and levy sanctions for violations. Appeals are made to a seven-member Appellate Body, which also meets secretly. With the Dispute Resolution Panel, the WTO has the strongest enforcement capabilities of any international organization. Documents are restricted to panelists and the parties involved. Third party appeals are not heard, which precludes the submission of amicus briefs. The inability to access documents hurts poorer countries that don't have money to burn on international trade litigation. Panel decisions are automatically binding and don't require unanimous consent of the members.

3. HEAR SOME ARGUMENTS AGAINST THE WTO

"The putative goal of globalization is a smokescreen that allows supranational elites (such as multinational corporations) to take power away from individuals, and the WTO is their willing co-conspirator."

The Argument: It has become a visual trope, the photo of the Third World city (Cairo, Bangkok, Mexico City, what have you) showing ragamuffin kids playing in squalid streets beside their shanties, with gleaming office towers and hotels not two hundred yards distant in the background. These photos are intended to shock us with the inequities of the global economy. You'd better believe they're not airbrushed.

We're blind to the power usurped by the multinational corporations (MNCs) because their role in politics is veiled from public view. They're accountable only to boards of directors and shareholders. The MNCs only value stability for their commercial activities. Our cleverest leaders learn to play it safe. Does anyone remember Clinton's health care drive? But look how popular he's been since he gave up trying to accomplish anything besides stabilizing and growing the economy.

And yet globalization brings great disturbances, beyond the power of our elected officials. The Asian financial collapse of 1997 shows the inherent volatility of the system.

The Response: To prevent future economic meltdowns, we can use the WTO as a forum to persuade nations to adopt international financial standards. With standard auditing we'll be able to avoid speculative bubbles based on faulty projections of economic growth. Investors want transparency too.

The temptation to criticize the WTO is irresistible to politicians who are incapable of governing. Sure, it's scary to realize that forces beyond your control are shaping your nation's economic destiny, but that's the way the world works.

Developing countries can't afford to pay wage rates set by industrialized countries. They must offer low wages or suffer retarded development. Sweatshops got a bad rap in America but at least they gave immigrants a chance of a new life. Imagine how much worse life would be for nations without the economic incentives provided by globalization.

"Globalization causes mass layoffs and huge income disparities. The WTO is rigged in favor of rich countries. We must dismantle it. Mere reforms alone won't alter its mission of capitalism at any cost."

The Argument: If you care not a whit about working folk, globalization is great. Consider these facts: 1.3 billion people survive on under $1 per day according to the 1999 UN Development Report. Eastern Europe has seen the most rapid rise in income disparities ever: between 1980 and 1995, corporate profits rose 145%, and the incomes of CEOs rose almost 500%. During the same period real wages fell. WalMart, General Motors, and Toyota each earn yearly revenues higher than the GDP of most nations.

The Response: It's true that jobs are sometimes lost when inefficient and uncompetitive sectors go out of business. However, on the whole, states that have liberalized their economies create replacement jobs soon enough.

Sampling eighty countries over a forty-year period, World Bank researchers found that all income levels have risen in roughly equal proportion. The early years of a nation's economic development entail big income disparities, but this shrinks over time as wealth gets distributed across society.

The Final Act has special provisions for developing countries. They are specially exempted under umbrella clauses that allow them to justify illiberal trade policies if the "needs of development" require them.

Although it's not the function of the WTO to protect the environment, it doesn't neglect environmental concerns. Article 20 in GATT lets states take actions to preserve human, animal and plant life and conserve natural resources or give subsidies for the purpose of environmental protection.

"The WTO is undemocratic."

The Argument: At the Seattle Summit, the EU, Japan, Canada and the US met in secret closed committees. Other nations weren't invited. This is tantamount to telling them that their interests don't amount to a hill of beans.

The Response: Closed committee meetings may have been a diplomatic mistake, but they're not always a bad idea. It's more efficient to meet in smaller groups and reach consensus before trying to get large groups of states to agree.

The developing countries' lack of experienced and skilled trade negotiators isn't the fault of more developed countries. Outcomes depend on negotiating tactics and styles. There's nothing inherently unfair with the structure of the WTO trading system.

In any event, Third World critics should be careful because their complaints embolden American isolationists, who use any excuse to castigate international organizations. Since the LDCs need the rich nations more than the rich nations need them, they should be more amenable to opening their markets.

"The WTO tramples the dignity and sovereignty of nations."

The Argument: The WTO is an unelected body that governs world commerce. That fact alone should alarm us. Why give a supranational body power over local and national priorities? When local bodies can't protect the environment and public health, democracy is damaged. National development should be in the control of nations, not the WTO. Why shouldn't national self-sufficiency be as prized as global economic integration?

If we must have an international trade organization, let's create one that places human values on a par with corporate values. Link trade benefits with respect for workers. Better yet, why don't we elevate an existing world organization like the International Labor Organization above the WTO?

The Response: We should think twice before conditioning trade on protection of the environment, human rights or labor. This antagonizes other nations and makes them less willing to adopt Western political practices, which should be our goal.

In fact, it was the bullying style of United States Trade Representative Charlene Barshevsky that chafed Third World nations the most at the unsuccessful Seattle WTO Summit. They felt that the developed nations threatened them with trade sanctions for child labor violations in order to block penetration of developed nations' markets by Third World textiles and agriculture.