The World Trade Organization (“WTO”) is tasked with promoting free trade, advancing the status of developing and least developed countries (“LDC(s)”), and resolving trade disputes. It is an international organisation that over 164 members have entrusted this power to. However, there are instances where the WTO has failed to keep up with this responsibility, particularly concerning LDCs and their interests. The WTO functions because of the funding it receives and it is pertinent to note that the majority of its funding comes from developed countries. For example, the highest contributing member state is the United States of America with 11.691% of the total annual budget.
When countries exercise such economic control over international organizations, concerns always arise as to whether these international organizations that are tasked with significant roles and responsibilities, are really independent. This begs the question of whether the WTO has aligned its policies solely along the interests of the more developed nations and bodies. In this context, this piece seeks to bring to light the underlying power dynamics at the WTO through concrete instances and internal politics (including the underrepresentation of certain developing nations).
Politics Influencing the WTO
Evident bias toward developed nations or huge trade blocs like the USA and European Union (“EU”) has already been established. This bias creates scope for international politics to influence international trade. The WTO has often remained a silent spectator when certain stances were required to be made clear. For example, it failed to clarify the deliberately vague rules on concluding trade agreements. Consequently, there were no clear rules to protect Africa in its trade negotiations with the EU, which led to the former member state having to forcefully eliminate tariffs on up to 90% of their trade.
A particularly noteworthy example of understanding how domestic electoral politics can underpin the international trade economy is by taking a particular look at the US Presidential elections. A study by Vox EU demonstrates that trade disputes initiated in the WTO Dispute Settlement (“DS”) System quite often coincide with the US Presidential election timeline (see below). Given this, it is clear that such stances adopted by US Presidents are often with a view to attain another term through re-election by proving that they take important matters to enforcement and are active leaders.
Statistics representing disputes filed at the WTO by the various presidents of the United States.
Source: Vox, European Union
Similarly, it is noteworthy to mention the WTO’s pro-USA/EU stance in certain matters. The WTO does not have the autonomy that it ideally should have, and is thus not ready to condemn major trade blocs like the USA and the EU for violations of trade agreements. For instance, the US excessively exported high-fat turkey tails to American Samoa because it was concerned about increasing obesity in the USA. This in turn resulted in reports of increased obesity within American Samoa, and in order to curb this, American Samoa banned such import. However, the USA did not have any other recourse to export its overly produced turkey tails and consequently, the WTO forced American Samoa to lift its ban in 2013 as a precondition to joining the WTO. Similarly, Mexico had to remove the 20% sugar tax that it imposed on fructose corn syrup imports from the US, in order to align its policies with the WTO.
Biased and Undemocratic?
The WTO is often viewed as a puppet of the rich, indicating its bias in favour of certain big-player members. This can be viewed through an analysis of agricultural subsidies, and ambiguous rules governing trade agreements. For example, in the past decade, the $47 billion paid to rich countries created obstructions for 15 million cotton farmers in Africa who were trying to trade out of poverty. Consequent to these agricultural subsidies, the world’s poorest farmers have not only been forced out of business, but have been pushed deeper into poverty. This problem is not limited to cotton. The WTO’s policy-bias is also evident through the fact that it has failed to arrive at a consensus with respect to reducing the large subsidies provided to the world’s richest agricultural producers, whose overproduction endangers poorer farmers in developing countries.
The WTO’s primary purpose to achieve free trade worldwide is thrust upon developing countries because unless they align their economic and trade policies, they will be denied membership to the WTO and crucial; which otherwise carries great benefits like access to the DS System, having a substantial say in international trade policies, support for the local industries, and access to WTO grants, etc. Evidently, these countries are to a major extent compelled to change their policies in accordance with the likes of developed countries, and to the detriment of their own citizens. This can be viewed as a coercive measure that creates an ‘undemocratic’ participatory outcome with respect to the third world network of countries.
Representation and Developing Nations
The WTO has been somewhat incapable in achieving its stated goal of “fair” trade for developing countries and in effectively elevating their status. According to the first Director General of WTO, Renato Ruggiero, the DS System is believed to be an important guarantee of fair trade for less powerful countries. This is because the intent behind the DS System was to empower underdeveloped/developing countries to be able to bring claims against developed countries. The DS System was therefore supposed to empower these countries. Unfortunately, its failure to discharge this intent is depicted through minute aspects such as its inability to reduce hefty legal costs that act as a significant impediment in terms of finding remedies or imposing sanctions. This reinforces its systemic bias against developing countries, resulting in disadvantageous outcomes for them.
Source: World Trade Organization.
In the pictorial representation above, Africa is most underrepresented while major trade blocs like the USA, and the EU dominate as complainants. This is because smaller countries in Africa cannot afford to avail the highly expensive legal costs of employing the DS System under the WTO. Legal costs of such trade disputes sometimes exceed $20 million. Similarly, if 15 months after the recommendations of a verdict, the defendant refuses to comply, then the plaintiff can set up retaliatory measures. Although retaliation threat is an essential component of the WTO DS System, to deter the violation of trade agreements, the retaliation must be extreme in order to induce compliance. Thus, the current rules of the DS System employ an inherent bias against smaller countries that do not have the resources to induce a major trade bloc into compliance.
The intention associated with the establishment of WTO was to empower developing and underdeveloped countries in order to improve their economic status. However, international politics affect its noble agenda and concerns have arisen as to whether WTO is really an international organisation that is accountable for its actions. The WTO ought to reform its structure by adopting measures like the potential reduction of legal costs for dispute settlement, increased public participation, and sanctions for non-compliance of notification obligations. It must do so if it truly aims to be institutionally inclusive, increase transparency, and cultivate a more democratic foundation.
Akshita Goyal is a third year, B.A LL.B (Hons.) student at Symbiosis Law School, Pune. She is also the Co-Founder and Chief Editor at Vox Populi.
Image: Getty.
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