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Exactly what is the WTO?

Monday, November 22, 1999



It operates from a large house in Switzerland. It has 533 employees, mostly translating documents. It spends $82 million a year, about as much as a medium-sized school district.

It is said by its friends, including the U.S. government, to be the bulwark of of law and reason in international commerce.

Its enemies call it a threat to labor, the environment and the sovereignty of nations.

It is the World Trade Organization.

"We didn't elect the WTO!" shouted a protester in Seattle a few weeks ago. "We elected a government!"

That is true. The WTO is a club of governments, like the United Nations. The WTO will not admit The Boeing Co., the AFL-CIO or the Friends of the Earth. When trade ministers meet in Seattle Nov. 30-Dec. 3, the American people will be represented only by the American government -- which is by all odds the most influential member of the club.

The members of this club do not run it by majority vote. They use consensus. What that means, said WTO spokesman Keith Rockwell, is that, "The United States puts its hand up, and things stop." Others can do the same, if they're big or there's a group of them. In the Uruguay Round, after seven years of talks, an agreement was on the table, and the French put up their hands. Their farmers wouldn't accept it. There had to be last-minute changes.

In the end, all the countries at least agreed not to object. Every country that cares about trade wants to be in the WTO. Some 135 countries are in, and more than 30 want to get in, from Croatia and Albania to Russia and China.

Why? Because the WTO nations are setting the rules for world trade. And that affects them all.

It is easy to puff these rules into more than they are. In 1996 former WTO Director-General Renato Ruggiero proclaimed, "We are writing the constitution of a single global economy."

Not compared with the U.S. Constitution. That document is the supreme law, enforceable by the U.S. Army. WTO agreements are club rules. Members promise to abide by them, but the only penalty to ignoring them is a sanction by the complaining member.

"We can live in sin and pay the penalty," said Bill Culbert, who was deputy chief of the U.S. delegation to the Tokyo Round (so-named for the city in which an agenda is set for a given series of policy discussions). "There is no authority to make us do what we don't want to do." Indeed, Europe is ignoring the WTO ruling in the hormone beef case, and accepting punitive U.S. tariffs on French foie gras.

The WTO is also unlike the Constitution in that it allows members to secede from the union on six months' notice. Virtually nobody does, though. China did, 50 years ago, and now wants back in.

In accepting WTO agreements, governments do agree to limit themselves. We have promised foreigners we will not restrict their goods and services here in certain ways. They have promised the same to us. These promises limit the authority of our local, state and national governments -- and theirs.

In that sense, a WTO agreement is like the Constitution, which proclaims internal free trade by limiting the sovereignty of the states. The WTO's prime rule is that members treat other members the same. If the United States puts a tariff on New Zealand apples it has to apply to South African apples.

WTO Members have also agreed not to restrict other members' products for health reasons unless they can show that the health risk is real.

Members have also agreed not to judge imports on how they were made. If a toy is dangerous to children, we can keep it out. That it was made by child labor, or involved cruelty to animals, or was made in a dictatorship, is not an acceptable reason to keep it out. Under the WTO agreement, such things are the producing country's business.

Exceptions exist to all these rules. An importing country may ban products made with prison labor, or in a way that threatens its endangered species. It may follow a UN-sanctioned boycott, as with South Africa, or boycott a declared threat to national security, as with Cuba.

Any WTO member can take another WTO member to a tribunal of three judges. Critics note that these judges are unelected. (So are our federal judges.) WTO judges are chosen by the two governments in the dispute. Judges hear cases in closed session. Some judges accept "friend of the court" briefs from outside groups, and some don't. The U.S. government wants to open up the sessions to observers and outside legal briefs.

Radical opponents call this "invisible government." Debi Barker and Jerry Mander of the International Forum on Globalization write that the central operating principle of the WTO is that "the interests of global corporations should always supersede all others."

That's hyperbole. The WTO's recent ruling against U.S tax breaks for exports could cost Boeing more than $100 million per year. Microsoft would lose, too. Most WTO cases -- bananas, for example -- have corporate interests on both sides.

In a wider sense, though, the WTO makes the world safer for business enterprises. Its rules are the rules of global capitalism.

These rules come from a long history.

The WTO was formed to recreate the trading world of nearly a century ago, of steamships and railroads. That world, wrote economist John Maynard Keynes, was one in which "the inhabitant of London could order by telephone the various products of the whole earth, and reasonably expect their early delivery upon his doorstep."

That world was blown apart by World War I. Governments tried to put it back together in the 1920s, but their work collapsed in the Depression. In 1930 Congress passed the highest tariff in U.S. history. There ensued a chain of devaluations and retaliatory tariffs called "beggar thy neighbor" policies. World trade fell 60 percent from 1930 to 1932. And new regimes -- Soviet Russia, Nazi Germany, Fascist Italy and Imperial Japan -- seemed antagonistic altogether to free commerce.

Then came World War II, and trade was stopped again.

As the war was coming to an end, President Roosevelt proposed a whole family of organizations to secure the peace. For trade, he proposed the International Trade Organization. It was an ambitious idea, and was going to take a long negotiation. To get business moving right away, 24 countries drew up a bare-bones deal and signed it in October 1947. They called it the General Agreement on Tariffs and Trade (GATT).

Five months later in Havana, Cuba, 53 countries signed the ITO Charter. It set up a system of majority rule -- one country, one vote. It would set up a tribunal for disputes in which recalcitrant losers would be sanctioned by all other members.

The Republican-controlled Senate had accepted the United Nations, where America had a veto. Also the World Bank and the International Monetary Fund. It would not accept an international trade body in which America would have the same vote as Bolivia.

Truman, a Democrat, didn't even bother to submit the treaty. The ITO died. That left the GATT, with its ill-defined structure and decisions by consensus. The GATT became the WTO, and has had the unbroken support of Democratic and Republican presidents for 52 years.

The original GATT agreement cut tariffs on 20 percent of world trade. Further agreements cut them more. U.S. Trade Representative Charlene Barshefsky said that since 1960, world trade has multiplied 15 times, world production five times, and world income per person has more than doubled.

Of the economic "miracles" of the past half century -- starting with Germany and Japan and ending with China, all have been built on world markets. Trade allows participants to find something lucrative and specialize in it.

Trade creates new jobs. It also wipes out old jobs and changes the jobs that remain. Farmers shift from growing food for the village to growing food for the world. They become subject to world prices. Their lives speed up. The village is changed.

Our own economy has changed. U.S. exports as a percentage of Gross Domestic Product have quadrupled since 1940 from about 3.5 percent to 13 percent.

Our exports have increasingly relied on movies, music, software and prescription drugs, all of which involve patents and copyrights. For a company like Microsoft Corp., one of the biggest issues in world trade is software copyrights -- an issue of intellectual property rights.

Speaking to a conference in Seattle by the free-trade Cato Institute, Microsoft Corp. attorney Bradford Smith said, "In the past, trade law was based on what happened at the border. With intellectual property, it is founded on what happens within national borders."

As it moves to "trade related" things inside borders, the WTO is involved in matters previously none of its business. That has made it new enemies who see it as a threat to sovereignty. But its success -- this is a club with sanctions -- attracts proponents of other causes, who want to give the WTO additional power over such issues as union rights and child labor.

For half a century, the WTO has been about subjecting commerce to commercial principles. In theory delegates to the Seattle Ministerial could move in any of three directions:

Deepen the rules on commerce. Carve out a larger area in which business can trade and invest subject to predictable law, while keeping social issues out -- what the U.S. Chamber of Commerce wants; Widen the WTO's scope to social issues. Allow the values of commerce sometimes to be trumped by human rights, labor rights or environment -- what many greens and labor unions want; Or, shrink the WTO. Give more flexibility to sovereign states to control, punish or favor business -- what the radical critics support. The official U.S. position is somewhere between 1 and 2.

One thing for sure: these questions will not be decided by the staff of the WTO, nor by the United States, nor by the people of Seattle. We're just providing a meeting place. It will be decided by the 135 members, in the secret and ponderous negotiations that will begin, but by no means end, at the Seattle Ministerial.

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