Is the WTO Legit?

World Trade Review, Vol. 1, No. 1, March 2002, Geneva

The World Trade Organization (WTO) boasts an impressive array of critics. Social justice activists, environmentalists, and even a large share of the general public in its member countries share a deep skepticism about the Geneva-based institution. At a time when globalization is increasing the need for a rules-based system of world trade, why is the legitimacy of the wto at an all-time low?

Yale law professor Daniel Esty offers some compelling answers in the inaugural issue of World Trade Review, a journal established by the wto secretariat. The WTO’s "legitimacy crisis," Esty argues, is a legacy handed down from the General Agreement on Tariffs and Trade (GATT), which combined two distinct institutional features: a narrow agenda and a lack of transparency. This "Club Model," as Esty describes it, enabled technocratic cognoscenti to negotiate tariff reductions behind closed doors. The Uruguay Round agreement, which established the WTO in 1995, extended the system’s reach to include a range of public policies, such as intellectual property rights, foreign investment, and even health and education. Amidst this change, the Club Model remains intact. The result: a widening gap between economic reach and public accountability.

So, the WTO holds increasing sway over national policies. But what values does it represent? And who holds sway over the institution? These questions lie at the heart of the legitimacy crisis Esty describes. He identifies three underlying causes: First, public fear of special interest domination is rife. Second, developing countries, which account for three quarters of the WTO’s 144 members, feel like second-class members. And third, the WTO’s rules reflect a narrow set of economic values that lack an ethical underpinning.

But these problems are not simply a matter of public perception, as Esty implies. The rules of world trade are weighted in favor of rich countries. A glaring example is the Trade-Related Aspects of Intellectual Property Rights (TRIPS) agreement, which requires all nations to enforce the same patent protections. Shorn of legal niceties, TRIPS is an act of institutionalized fraud. Patents are supposed to balance incentives for innovation against the public interest in dispersing knowledge. Nine out of every ten patents are held by rich-country firms that make nearly $40 billion a year from the agreement. For developing states, stringent patent protection means higher import bills for new technologies and restrictions on innovation. Meanwhile, companies such as Merck and Pfizer have used TRIPS to restrict governments’ abilities to provide citizens with low-cost versions of patented medicines, as in South Africa and Brazil.

To poor countries, the wto embodies a system of double standards in world trade. Northern governments promote free trade and use the International Monetary Fund (IMF) and World Bank to impose import liberalization on poor states. Yet these same governments refuse to open their own markets. When poor nations export to rich countries, the former face tariff barriers four times higher than those applied in North-North trade. These trade restrictions cost developing nations at least $100 billion a year — twice the amount they receive in aid.

Nowhere are the double standards more apparent than in agriculture. Rich-country subsidies to farmers amount to nearly $1 billion per day. The resulting surpluses are dumped on international markets, often with devastating consequences. When Haiti liberalized rice imports in 1995 under an IMF-World Bank program, the country was flooded with cheap, heavily subsidized U.S. rice, which destroyed the livelihood of thousands.

The Doha agenda provides a last chance to strengthen the WTO’s legitimacy. Northern governments have billed it as a "development round," but poor nations have little cause for optimism. Rich countries are dragging their feet over phasing out the Multifibre Agreement, an onerous system of discriminatory quotas targeted at textiles and garments in developing countries. And the 2002 U.S. farm bill, with its $80 billion increase in subsidies over 10 years, has effectively ended negotiations before they even started.

Esty does not address these issues and is much stronger on identifying problems than solutions. He calls for "a more virtual WTO that places itself within a web of public policy networks," without suggesting how this web might be spun. But Esty’s argument for a new multilateralism will have a powerful resonance. Most social justice activists are not against a rules-based system, and they are not "anti-trade." What they want, and what the world needs, is a multilateral system that uses trade to reduce poverty and reverses the current trend of rising inequality. The existing regime does not fit the bill.