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Chapter One
International Trade:
The World Trade Organization
Economic theory has shown that—other things being equal—international trade benefits all parties. In practice, other things are rarely equal. In particular, the gainers from international trade rarely compensate the losers. Nevertheless, few people would question the benefits of international trade. Individual countries may seek, however, to derive additional benefits by imposing import restrictions or subsidizing exports. The injured parties are likely to retaliate, and if the process goes unchecked, the benefits of free trade are likely to be lost. That is why it is so important to establish general rules by which all parties abide, and that is what the WTO has accomplished. This makes the WTO a very valuable institution. If it didn't exist, it would have to be invented.
The WTO is, in many ways, the most advanced and fully developed of our international institutions. It has been successful not only in creating international law but also in exercising a judiciary function. Moreover, it has found a way to enforce its judgments. The device used by the WTO is to authorize the injured country to retaliate unless it receives compensation or the practice is discontinued. This is a very effective device; in most other areas the sovereignty of states poses insurmountable obstacles to the enforcement of international law.
Because of these features, I have been a great admirer of the WTO—without actually knowing too much about it. In fact, the inner workings of the WTO are so complicated that when it came to discussing theorganization, my eyes used to glaze over. But more recently, the WTO has come under concerted attack by a coalition of nongovernmental organizations (NGOs) and labor unions. This has forced me to look at the WTO more closely, and I found that its critics have some valid points.
There is very little wrong with the mechanism itself. The mission of the WTO is the rules-based liberalization of international trade, and it accomplishes that mission brilliantly. Indeed, given the fact that the organization of the WTO required the unanimous consent of the founding members, it must be acknowledged as an outstanding feat of lawyerly ingenuity. Nevertheless, the critics are right in claiming that the WTO is biased in favor of the rich countries and multinational corporations. The bias is due not to the mechanism of the WTO but to the way it has been used, and to the absence of similarly effective structures for the pursuit of other social goals such as the protection of the environment, labor rights, and human rights. I shall consider these two types of deficiencies in turn.
As regards the misuse of the WTO mechanism, two issues stand out. The first, and in terms of the sheer volume of trade most important, is the disparity in the treatment of developed and developing countries' products. The removal of tariff and non-tariff restrictions on agricultural products, textiles, and footware is phased in over a much longer period than on more advanced industrial goods. The advanced industrial countries currently spend some $360 billion a year on subsidizing their agriculture. By contrast, they spend only $53.7 billion on foreign aid. The United States also continues to retain the benefits of its antidumping laws, which can be invoked for protection against low-cost imports. These features create a very uneven playing field.
The second issue concerns the bias in favor of corporate interests. There are agreements on Trade Related Intellectual Property rights (TRIPs) and Trade Related Investment Measures (TRIMs), but there is no agreement on trade-related labor rights, except prison labor, or trade-related environmental measures. The choice of subjects clearly favors corporate interests. Indeed, it was the attempt to enact a "Multilateral Agreement on Investment" that first galvanized antiglobalization activists into protest and handed them their first victory in stopping it.
There is a WTO rule that prohibits countries from treating physically similar products differently based on how they are made. This rule is designed to prevent countries from discriminating against foreign suppliers by introducing regulations concerning production methods, but in practice it makes it difficult for individual countries to impose environmental, labor, or human rights standards. Such standards could, of course, be imposed by international treaty, but treaties are difficult to reach and even more difficult to enforce. For instance, the International Labor Organization (ILO) has established an elaborate set of conventions, but they are largely ignored. Moreover, if the ILO conventions were observed, they could come into conflict with WTO rules. For example, the ILO has authorized member countries to impose sanctions on Myanmar over forced (as distinct from prison) labor, but ILO members wishing to adopt restrictions on imports of Burmese products in response could be found to be in violation of WTO rules. WTO rules also take precedence over domestic regulations if those regulations can be construed to discriminate against the products of other countries. The lack of international regulations and the obstacles to domestic regulations combine to favor corporate interests.
In the absence of equally binding regulations in other fields such as human rights, labor conditions, health, and environmental protection, the WTO gives international trade supremacy over other social objectives. In a way, the WTO has been too successful. It is practically the only international institution to which the United States has been willing to subordinate itself. This makes it very powerful. But free trade and free markets serve only to produce wealth; society also needs some other public goods to survive and prosper. There is an imbalance between private profit and public welfare in the world today; and that is a primary reason why the WTO has come under attack.
The weakness of other institutions cannot be remedied by changing the WTO. The WTO is not qualified to deal with environmental protection, food safety, human rights, and labor rights except insofar as international trade is involved. Although some changes could and should be introduced to make the WTO more cognizant of these issues, the main remedy lies in states, particularly the United States, giving equal support to other international arrangements.
The strength of the WTO is its enforcement mechanism. There are two reasons why enforcement is not suitable for the provision of public goods. One is that the member states will not put up with it. The WTO has found an excellent device that sovereign states are willing to accept because they want the benefits of trade. But that is an exception; states will not accept it in other areas. The rules of the WTO cannot be modified, nor can new rules be introduced, without unanimous consent. China has just joined the WTO: Is it conceivable that it would agree to the inclusion of human rights and labor rights? Would the present U.S. government be any more amenable on the environment?
The other reason is that many countries simply lack the resources to meet international standards. Instead of imposing requirements, it would be much better to provide resources that would enable poor countries to comply with those requirements on a voluntary basis.
Take child labor. Instead of introducing a rule in the WTO prohibiting child labor, we ought to provide the resources for universal primary education. We could then demand that the recipients of support eliminate child labor as a condition of receiving that support. In Brazil a successful pilot scheme called Bolsa-Escola pays subsidies to poor families if all their children regularly attend school. An additional scheme is now proposed that would reward the girls with a savings account if they complete eight grades. This is the kind of scheme that could be implemented on a larger scale with international assistance. This approach would overcome the obstacles posed by the sovereignty of states because the acceptance of support would be voluntary.
Or take the social dislocations caused by the "creative destruction" of global capitalism. They create a need for compensation, retraining, and a social safety net. These are domestic tasks outside the scope of the international trading rules established by the WTO. But some countries are too poor to finance the necessary measures; they need international assistance. That is the missing component in our global institutional arrangements. We need to establish a voluntary compliance-based system for the provision of public goods to complement the rules-based system of the WTO for the production of private goods. I shall propose such a system in the next chapter.
In addition to a new framework for aid, there ought to be some changes in the framework for trade. A number of issues stand out: labor rights; environmental protection; intellectual property rights, or TRIPs; Trade Related Investment Measures, or TRIMs; competition, anticorruption, and tax policies; and the organization of the WTO. Some of these issues are included in the Development Round; others must be dealt with in other ways.
Labor Rights
The disparity in the treatment of labor and capital is an essential feature of the global capitalist system as it is currently organized. Capital moves to countries where it finds cheap labor and other favorable conditions. This helps those countries to develop; a number of them have made remarkable progress. Developed countries lose jobs, but the gains from trade allow new jobs, often with greater value added, to be created. There is also a certain amount of migration, both legal and illegal, to the rich countries to fill jobs that cannot be filled locally. But workers in the countries that offer cheap labor are often deprived of the right to organize and are mistreated in other ways. China is notorious in this respect.
Labor rights were not included in the work program for the Development Round, and now that China has joined the WTO it is unlikely that it will be in future rounds. This suits the corporate interests of multinationals just fine.
There is an international institution devoted to the protection of labor, the ILO. The ILO predates the WTO and in one respect is superior to the WTO: It has a tripartite structure comprising trade unions and employers as well as governments. Its Charter is otherwise almost identical with that of the WTO. It has elaborated all the conventions necessary to protect labor. Like the WTO, the ILO authorizes enforcement measures of an economic character against another member refusing to come into compliance with a report issued by an ILO Commission of Inquiry—very much like a WTO panel. The key difference between the WTO and the ILO is the commitment of the member states. For example, the U.S. government has ratified only 13 of 182 conventions of the ILO, and only 2 of its 8 core labor standards.
Critics of the WTO who are agitating for better protection of labor rights are barking up the wrong tree. They ought to be agitating for strengthening the ILO rather than against the WTO. There ought to be a better balance between the WTO and the ILO. If the member states had the political will, they could ratify and enforce the ILO conventions.
The bureaucracy of the ILO would also need to be energized. It has come to terms with its lack of power and does its best under the circumstances, accumulating information and supporting small-scale demonstration projects out of its tiny budget. Going beyond its accustomed role, it has recently established a Commission of Inquiry on forced labor in Myanmar (Burma), which produced a scathing report, but nothing happened. A recent follow-up reported no improvement.
Because the WTO is so powerful, whereas the ILO has proved so powerless, some critics of globalization would like to give the WTO a greater role in enforcing labor standards. But there are problems with this approach. Many labor violations have nothing to do with international trade and may have no impact on it, for example using child labor to produce domestic crops or prohibiting the unionization of bus drivers. Moreover, the WTO might shy away from sanctions on countries that are not signatories to the ILO conventions. The right approach is to ratify and enforce the ILO conventions. That is where civil society ought to come into play, exerting pressure on governments to do so.
It has been argued that under WTO rules actions authorized by an ILO Commission of Inquiry could be challenged in the WTO. That would be the case if a country imposed trade sanctions against Myanmar (Burma). Unfortunately the argument has not been tested because no country has acted on the findings of the ILO. I believe a WTO arbitration panel would recognize the jurisdiction of the ILO; if not, there would be a legitimate cause for agitating against the WTO.
The ILO is such a harmless institution that China did not mind signing a protocol of understanding and cooperation with it. This may come in useful sometime in the future, when the ILO will have become more powerful, to put pressure on China to respect the freedom of association. China has an almost inexhaustible source of cheap labor, and its labor is becoming more productive as its economy develops. It will be increasingly difficult for other countries to compete unless labor in China is allowed to reap the benefits of its increased productivity.
Environment, Health,
and Safety
Environmental, health, and safety regulations pose some thorny problems. As things stand now, countries are free to introduce whatever regulations they want within their borders, but no country can use trade sanctions to impose its own standards on another country when the imported product is physically the same as the nationally produced one. The only exception to this rule is if there is an international agreement in force to which both WTO member countries have subscribed. This makes it difficult to impose environmental standards on other countries. As
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Excerpted from GEORGE SOROS ON GLOBALIZATION by George Soros. Copyright © 2002 by George Soros. Excerpted by permission. All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
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