During the debates on Britain’s post Brexit trade much was made of the term ‘WTO rules’ as if there was a body of rules which could act as an alternative to the EU’s trade rules. The simple basic fact about the WTO is that it can only have as much power and influence as its members states allow it to have.
What is the WTO?
The WTO is best understood as an international forum that sets the framework in which its member states (currently 164) agree to trade. The WTO sets a minimum baseline, based on principles of liberal free trade; it does not act as the enforcer of law like a police agency.
If any country feels discriminated against by another country’s trade practice, then it can bring a case to the WTO’s ‘dispute settlement’ procedure. If the claim is adjudged unfair, the successful claimant can take retaliatory counter measures. This ‘dispute settlement’ procedure was established at the founding summit of the WTO in 1996.
Why was the WTO established?
The WTO was established at the Marrakesh Summit of 123 nations in 1996 as the culmination of a long evolution of the idea that world trade needed an agreed international legal basis. It was the somewhat belated child – or better, grandchild – of the post WWII settlement under the auspices of the Bretton Woods system, which sought to establish stability in the world’s capitalist economies and avoid the interwar years’ social, economic and political collapses.
What was the plan for creating stability?
Fiscal stability was to be secured by the International Monetary Fund, and economic recovery and development would be fostered by the World Bank. A third pillar was to be established to guarantee stability in trade to avoid repeating the downward spiral of the 1930s’ policies of trade protection, where countries tried in vain to isolate themselves from worldwide shocks. A putative ‘International Trade Organization’ was signed up to by 56 countries in Havana in 1948 but soon ran aground when the US Congress refused to submit it to the Senate for ratification.
Why was the USA opposed to the International Trade Organization?
There were two reasons for this. The first was the USA’s longstanding hostility to the idea that international law should apply to the USA itself. This is known as ‘extraterritoriality’, which still remains a problem for the USA. (Indeed, opposition to the idea that an international body should have jurisdiction over national law formed the basis for the Brexit revolt here in the UK.)
Secondly, the USA emerged as the world’s leading economic and military power and had every confidence that it would dominate the world’s economy outside the Soviet bloc and therefore saw no need to make concessions to international control of trade.
How, then, did the world begin to move towards free trade?
Through GATT (the General Agreement on Tariffs and Trade), proposed at the same post-war conference as the less successful International Trade Organization, and signed in 1948 by 23 countries including the US and the UK.
GATT followed an agenda set over a number of summits to steadily reduce the numbers of hindrances to liberal free trade. However, by the 1990s there was a growing consensus that globalisation of the world economy demanded a more structured and institutionalised set of rules and regulations. This led to the founding in 1995 of the WTO, an inter-governmental organization with headquarters and staff, operating under the umbrella of the GATT rule system.
Was the USA on board?
Indeed. The key turning point was the conversion of the USA to the idea of ‘managed trade’ that it had blocked in the 1940s. Faced with growing competition from the EU, Japan and the ‘Asian Tigers’, President Bush (senior) sent his chief trade negotiator off with a symbolic crowbar to prize open the markets for US exports. To tempt the developing countries on board, a dispute mechanism was introduced, which seemed to offer a method whereby any country could challenge world trade being dominated by the major trading nations.
However, the USA believed it could use the WTO’s dispute procedure as a kind of litigation process, to break open protectionist markets in the interests of its own multinationals.
Was the USA allowed to exploit WTO rules in this way?
Developing nations led by India cut off some of the danger by preventing attempts to allow private firms to use the dispute procedure to further their own ambitions through litigation. Only sovereign states (and entities like the EU) could bring a case to the WTO.
This happened most notoriously when the USA, acting through surrogate Central American states, broke open the EU’s ‘banana’ regime which offered protection to mainly Caribbean banana growers.
However, the WTO itself responded to demands from developing countries to instigate a regime more accommodating to their needs by starting the so-called Doha Development Round.
Sensing power slipping away, the USA multinational business lobby stalled and then finally blocked any progress towards the WTO actually being allowed to set up more equitable binding trade rules. The WTO has subsequently trimmed its ambitions and settled for being a useful forum for trade negotiations – a kind of ‘GATT Plus’.
What’s the UK’s position post Brexit?
The UK was a founder member of GATT and its separate representation continued into the era of Britain’s membership of the EU and the WTO. Though UK trade was conducted within the framework of EU trade law, Britain always kept a watchful eye with its own presence in Geneva where the WTO is located. This presence has been beefed up post Brexit.
Trade remains one of the more arcane areas of politics and in this country scarcely accountable to democratic oversight and scrutiny. Now that Britain is trading alone, we should emulate the practices of other major traders and entities. One simple mechanism, as adopted by the European parliament, would be the introduction of an annual report on ‘Actions undertaken at the WTO’ to parliament, which would be an excellent though modest starting point.
Given all the promises that were made about global Britain and the opening up of exciting free trade opportunities, a second welcome step would be to make this a public document. It does not seem unreasonable to expect to be able to scrutinize and comment on negotiations and agreements conducted on our behalf.
After all, our future depends on our success as a trading nation and the WTO will continue to be at the heart of this.
