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Trade policy

A brief history of the WTO

by Hans Dembowski
The World Trade Organisation (WTO) came into force on 1 January 1995 and is based in Geneva. More than 150 nations are members. The WTO’s top decision making body is the Ministerial Conference, which is normally held every two years. In December, the Ministerial Conference is expected to accept Russia as a new WTO member.

The WTO is a relatively powerful international organisation. Its dispute settlement body can impose sanctions to enforce decisions on member countries’ disagreements over what WTO rules mean in practice.

The WTO was preceded by the General Agreement on Tariffs and Trade (GATT), which was concluded in 1947. Back then, the original idea was to start an International Trade Organisation, but that did not materialise. In the GATT context, there were eight rounds of trade liberalisation talks. Initially, their topics were the reduction of tariffs and the phasing out of quotas, but later other trade barriers were tackled to.

The Uruguay Round was the final GATT Round. It was started at a summit in Punta del Este in 1986 and concluded in Marrakesh in 1994. It capped agriculture subsidies and established the WTO. Other important results included
– the end of textiles quotas at the beginning of 2005,
– the Agreement on Trade Related Intellectual Property Rights (TRIPS) and
– the General Agreement on Trades in Services (GATS).

The WTO is meant to continue liberalising trade through negotiation rounds. For many years, however, members did not agree on an agenda for a new round. At the Ministerial Conference in Singapore in 1996, the rich nations insisted it should include investors’ rights, competition/anti-trust policy, trade facilitation and government procurement. Developing countries disagreed, fearing that binding rules on these “Singapore issues” would restrict their policy space and limit their scope for growth.

The next summits in Geneva in 1998 and Seattle in 1999 similarly failed. Protests, which are now ­considered the beginning of the movement of globalisation sceptics, overshadowed the meeting in Seattle. Civil society organisations argued that the WTO served the interests of rich nations in exploiting the Third World.

Such criticism was misleading. The WTO only passes rules when all members agree. Every member has the right of veto. Since many developing countries are WTO members, their bargaining power is stronger in this context than when they negotiate on their own with the great economic powers.

Nonetheless, there was reason to protest. Many developing countries felt cheated by the Uruguay Round because it did not allow them to increase their exports as fast as they had been made believe. One reason for such frustration was that trade policy is very complex, and the details may fast overburden countries with weak governmental capacities. The EU and US delegations arrive at Ministerial Conferences with armies of legal advisers, but small and poor countries are typically only represented by a handful of diplomats.

At the turn of the Millennium, moreover, a global dispute erupted over pharma patents, which, according to TRIPS, are protected all over the world. Brazil, Thailand, South Africa and other nations, however, urgently needed low cost HIV/AIDS medication. The Ministerial Conference in Doha in 2001 dealt with this matter by allowing members to break patents if doing so is necessary to protect public health because those who own intellectual property rights do not make essential medication avail­able at acceptable prices.

The summit in Doha also started a new round of negotiations. Among other things, it is supposed to further reduce agricultural subsidies and phase out export subsidies for agricultural products. These issues matter very much to developing countries that depend on agriculture. Subsidies in richer nations thwart their farmers’ competitiveness.

In Doha, moreover, the rich nations put the Singapore issues on the agenda, even though the developing countries, led by India, made it clear they would not accept rules on these matters. So far, trade facilitation is the only Singapore issue on which talks have made reasonable progress. All in all, however, the Doha Round looks stuck. The USA and the EU are pursuing bilateral strategies – and so are emerging giants like China and India. (dem)