Volume 1, Number 17
23 July 2001

The World Trade Organization

Dear Friends,

Misinformation about the WTO that is currently making the rounds claims that:

  1. The WTO is operated by, and in the interests of, multinational corporations (MNCs). It is designed to transfer the operations of MNCs to countries of cheap labor.
  2. The WTO attempts to excuse MNCs from their responsibilities toward the environment. Therefore, it promotes environmental degradation.

The correct information is this:

  1. Some of the major findings of the WTO would harm the bottom line of some of the largest MNCs.
  2. The WTO has no jurisdiction over a nation's environmental policies, which are entirely within the sovereign power of governments.

In fact, the WTO has no sovereign power at all. It cannot order any government to do anything. It does not have an army or police force, and it cannot put President Bush in prison if the United States does not implement its findings. Both the United States and the European Union have refused to put into effect major findings of the WTO.

So, what does the WTO do? Two things, mainly: (1) It provides a platform in which governments may negotiate a level playing field for the trade of member countries. Member governments have agreed that their own citizen traders, and traders from other member countries, will all operate by the same rules. Thus, if a tariff concession is made to one country, it must be made to all member countries. No government may place a restriction on the trade of other countries that it does not apply to the trade of all. (2) It attempts to negotiate reductions in the overall level of trade barriers (tariffs and other restrictions) among nations.

Suppose a member government violates its agreement with the WTO, by granting preferential terms to some countries' traders that are not granted to all. Any government discriminated against may appeal to the WTO. Upon finding a violation, the WTO does not order the offending government to stop. Instead, it gives the offended government the right to retaliate (reasonably) against the offender, without itself being called for a violation. Thus the European Union has given preferential treatment to former European colonies in the import of bananas. The United States, whose companies sell Latin American bananas, has complained. The WTO found against the EU, but the EU did not correct its violation. Instead, the US was given permission to institute penalty tariffs against EU exports without being called for a violation.

In another example, the United States requires tuna fishers to use special equipment to limit the accidental kill of dolphin. Since Mexican tuna fishers are not required to use the same equipment, they can produce tuna more cheaply. The US therefore restricted the import of Mexican tuna. The Mexican government complained, and the US was found in violation. (It is cases such as this that causes the belief that the WTO is anti-environmental). But the WTO did not order the US government to change its policies (remember, it cannot order any government to do anything). Rather, it told the Mexicans they would not be charged with a violation if they retaliated (reasonably) against the US. So far, the US has not changed its policies, and so far, Mexico has not retaliated. Instead, the two governments are negotiating to see how the Mexicans can reduce the dolphin kill. This is hard for them, since Mexico is a poor country, and tuna fishers have some political power.

I do not know of a single case in which a government has reduced its environmental protections because of a WTO decision. If you know of any, please tell me. (I am a general international economist who does not study the WTO in the details of all its decisions — only the most important).

Now consider the bottom line of MNCs. The United States gives preferential tax treatment to "foreign sales corporations" (FSC). These "are shell companies in offshore tax havens through which American firms channel foreign income to avoid tax. They benefit some 6,000 American firms. Among them are Boeing, whose FSC saved it $130m in tax in 1998, and General Electric, which saved some $150m. They also benefit American subsidiaries of foreign firms, many of them European. In 1998 these included Britain's BP, ICI and Unilever; Germany's BASF, Daimler Benz and Hoechst; and France's Elf-Aquitaine and Rhône-Poulenc" (The Economist, 3/4/00). The European Union complained that these tax preferences constituted illegal discrimination. The WTO found in the EU's favor, giving them the right to retaliate against the US. So much for the fiction that the WTO is a "tool" of multinational corporations!

Rather than do environmental harm, it seems to me the WTO has forged a platform on which the governments (e.g., Mexico and the United States) can negotiate their differences. The environment does not belong to the United States, and if we want to clean up the world, we must do it in conjunction with our fellow human beings.

Negotiating reductions in tariffs is, however, the most important WTO function. One of the principal barriers to employment and prosperity in the less developed regions is their inability to export to the more developed world. They have complained about this for decades. Just recently, however, a "panel of financial and development experts has called for a new round of international trade talks devoted primarily to helping countries too weak to reap any benefits from the growing global economy. The panel - which included Robert Rubin, the former United States treasury secretary, and Ernesto Zedillo, the former president of Mexico - recommended that a ministerial- level World Trade Organization meeting planned for Qatar in November `should set an objective of making trade as free between industrial and developing countries as it already is among the industrial countries.' The matter is urgent, the experts said in a report commissioned by Secretary General Kofi Annan, . . . because many poor countries are suffering from a slump in the prices of the commodities they produce, and rich countries are dragging their feet on promises to help open more markets to them. Mr. Zedillo, the panel's chairman, said at a news conference here today, that richer nations should see the intractable poverty of so much of the world as an issue of self-interest" (New York Times, 7/1/01).

How does the WTO function? Here the workshop participants and I had some friendly discussion. Suspecting that the WTO panels might be dominated by multinational corporations, one participant felt it very important to know who constituted their membership. I thought, on the other hand, that if we dwell unduly on their membership, we tend to stereotype, such as: "Executives of MNCs find in favor of MNCs." Rather, I thought, we should examine the results to determine whether findings do in fact favor MNCs. I believe that mainly, the decisions are designed to level the playing field, and whether they help or harm MNCs depends on where the chips fall. In the FSC case, for example, the decision would harm many MNCs.

The WTO consists of a Director General appointed by the governments (currently Mike Moore of New Zealand, whose background is mainly in government), a Secretariat, and 550 staff members of about 60 nationalities. The professional staff is composed mostly of economists, lawyers and others with a specialization in international trade policy. When a member government complains about another's actions (as in Mexico complaining about the US tuna rule), the WTO offers its services for negotiation. If negotiation fails, a Dispute Settlement Body appoints a panel of three or five specialists in the field under consideration, to prepare a recommendation. The recommendation may be appealed to a higher body; otherwise, it stands.

I have told you in earlier Letters how I have wandered among the slums of all Latin American capitals (except Cuba), about ten in Africa, and some in Asia. During these wanderings, I have talked with the poorest of the poor. What they want most of all is jobs, and jobs will be possible only if the rich countries buy their products. Negotiating this — which the WTO does — is probably the best thing we can do for the impoverished of the world.

So, who ever said that the WTO is the big bad wolf? Please let me know what you think.

Peace and friendship,

Jack Powelson

Readers' Comments

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I challenge your assumption that reducing restrictions on trade creates a level playing field. Often, as with NAFTA, the consequences are quite the opposite. Small farmers in Mexico are being buried in cheap imports of rice, corn, milk and coffee. In a global market, the cheapest producers (regardless of true environmental costs, intensity of petroleum use, labor standards, etc.) have the capacity to destroy small ones.

It's worth pondering, isn't it — those of us who are interested in the plight of the global poor. As I know you share my concern, I am curious how you would answer.

— David Morse, Storrs (CT) Friends Meeting

Reply: David's point is another Bastiat example. What is not seen is that poor Mexicans, for whom corn is a major part of the diet, are forced to pay higher prices than they would when allowed to buy corn from across the border. And there is malnutrition among poor Mexicans!

True, the Mexican farmer faces a crisis. It is a crisis brought on by decades of mismanagement by the Mexican government, as well as "protection." To "protect" the farmer further merely prolongs the poverty. The lasting solution is:

  1. Help the Mexican farmer increase productivity on the farm, with new methods and new machinery, so he can compete with imports. Small farming can compete with large-scale farming if the large-scale farmer insists on US wages (as he does).
  2. Help the Mexican farmer move into new jobs in which his productivity (and wages) will be higher (as American farmers have been doing for the past century and a half). Until this happens, his misery will continue.

Sorry, but I believe your proposal, if adopted, would immiserate him further.

— Jack

No, WTO is not the big bad wolf, but neither is it innocent Little Red Riding Hood.

WTO is the creation of governments and its policies and actions reflect the economic power of the various goverrnments. OECD countries have the experience, the wealth, the knowledge and the ability to influence the work of the WTO secretariat and the negotiations more than the LDCs can. But little bit by little bit that seems to be changing.

Seattle negotiations broke down not just because of the protesters. Some LDCs protested in their own ways.

— Vici and Seiki Oshiro, Minneapolis (MN) Friends Meeting

One Friend commented: If the negotiators are an ant and an elephant, what good does a level playing field do?

Reply: The WTO might pass a rule that neither is allowed to step on the other. But would it? Well, it has passed many analogous rules. If there were no WTO, however, the elephant would surely have his way. — Jack


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Publisher: Russ Nelson, St. Lawrence Valley (NY) Friends Meeting

Editorial Board

  • Virginia Flagg, San Diego (CA) Friends Meeting.
  • Herbert Fraser, Richmond (IN) Friends Meeting.
  • Asa Janney, Herndon (VA) Friends Meeting.
  • Gusten Lutter, Mountain View Friends Meeting, Denver (CO).
  • Jack Powelson, Boulder (CO) Meeting of Friends, Principal Editor.
  • J.D. von Pischke, a Friend from Reston, VA.
  • Wilmer Tjossem, Des Moines Valley (IA) Friends Meeting.
  • Faith Williams, Bethesda (MD) Friends Meeting.

Members of the Editorial Board receive Letters several days in advance for their criticisms, but they do not necessarily endorse the contents of any of them.

This newsletter was formerly known as The Classic Liberal Quaker.

Copyright © 2001 by Jack Powelson. All rights reserved. Permission is hereby granted for non-commercial reproduction.

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