visser_logo_small.gif (1783 bytes)SociaI and Environmental Dimensions of Trade Liberalization: 
Some Early Reflections on the World Trade Organization

Williams, page 1 - 2 - 3 - 4
Section headings:

dot.gif (101 bytes) 1. Introduction dot.gif (101 bytes)  4. Critical areas of Concern
dot.gif (101 bytes) 2. A Brief Historical Overview of Globalization and Trade Liberalization dot.gif (101 bytes) 5.. Conclusion
dot.gif (101 bytes) 3. From GATT to WTO dot.gif (101 bytes) 6. Bibliography


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3. From GATT to WTO

The GATT which set the code of conduct regulating the activities of nations involved in world trade was created in 1947. What is now the GATT was woven together from the chapter on commercial policy of a larger proposal intended to create a multilateral trade organization--the International Trade Organization (ITO). The ITO never made it. However twenty-two nations signed on to the substantially revised agreement. In the words of Peter Sutherland, the director general, the "GATT was originally conceived to be a provisional agreement to be reconsidered upon the establishment of the ITO" (Sutherland 1994).

Though lacking an institutional framework, the GATT has acted as an international organization over the last fifty years. During this time the contracting parties to the agreement, as the members are termed, have undertaken eight negotiating rounds to expand the domain of the GATT over international trade.

In general the objectives of these rounds were to reduce tariffs and non-tariff barriers on the flow of goods across national boundaries. Within this arrangement each country reserved the right to establish its own policies regarding health, safety and environmental protection. However by the 1980s certain inadequacies began to put severe pressure on the system, primary of which was in the areas of the proliferation of non-tariff barriers [see previous note: Other types of NTBs include anti-dumping: measures to counter dumping. Dumping occurs when a firm sells in a foreign market at a price below its cost of production. Anti-dumping regulations are designed to protect domestic firms from the "effects of unfairly priced imports", as such they may include duties or penalties to neutralize the extent of the below-cost sales.  Subsidies are government grants of cash disbursements to domestic exporters (direct subsidies) and or indirect subsidies such as special privileges (tax concessions and below market interest loans) These are seen as barriers to trade because they help producers/exporters to have an artificial cost advantage (unfair competitive advantage) over, for example, a foreign producer of the same type of product. The GATT outlaws direct cash subsides to manufacturers, so governments often used indirect subsidies. Countervailing duties are duties directed at neutralizing the effects of export subsidized imported goods. Custom valuation relates to the practice of valuing imported goods in order to impose duties. Technical barriers to trade refers to marketing and packaging standards.); the shift in the comparative advantage of the OECD countries from manufacturing to high technology and services; and consequently the rise of manufacturing capabilities in developing countries. Additionally, the protection of competitive advantage of the North required a tighter more regulated system to protect services and high technology from the encroachment of the South. The GATT, therefore, needed to be expanded to these areas.


The eighth round of GATT negotiations, the Uruguay Round, undertook this initiative. This round "substantially changed the domain of the GATT 1947 by including investment and services and intellectual property rights." It also created a new institutional mechanism to legitimate and make binding these extension on all members. Thus the Uruguay round has three pillars: the updated multilateral trade agreements; the GATS (General Agreement on Trade in Services); TRIMS (Trade Related Investment Measures); and TRIPS Trade Related Intellectual Property Rights). The last two pillars are very important because they extend the GATT into areas never before considered and thus also altered the legal structure of the agreement and commitments. While the GATs extended the GATT into investment dimension, the TRIPS extend it in into the areas of domestic regulatory standards as opposed to the traditional realm of foreign policy

The GATS: This agreement extends the GATT into previously excluded areas such as banking, insurance, and other services. It thus encourages the takeover of these areas by international financial interests who can then determine national fiscal and investment policies. As a result, safeguards in places in many countries to protect workers and ensure a minimal access to health and other services may be drastically curtailed or eliminated. This will further intensify privatization efforts.

The TRIMS: The central purpose of the Trade Related Investment Measures agreement is to end restrictions on foreign investment. With this agreement, countries can no longer have special rules or requirement that would protect land and industries from being overtaken by foreign investors. Specifically the TRIMS will eliminate or substantially reduce local content requirements; export requirement; trade-balancing requirements; local equity requirements and manufacturing limitations. TRIMS will also have serious implications for social policy development; financing, control of bank credits, employment fiscal and monetary policy (Environmental News Network, 1994).

The TRIPs: Utilizing the present laws in the industrialized countries as standards, the TRIPs agreement will require uniform intellectual property rights. The intent of these laws is to protect the monopoly rights of transnational corporations who will be able to patent and copyright all types of products: plants, animal varieties and biological processes for plant and animal production. TRIPS will also extend the maturity period for rights and will preclude governmental limitations on such rights for the public good. Therefore transnational corporations will have control over technology, inventions and scientific breakthrough in all fields.

Under the TRIPS developing countries will be forced to introduce laws protecting patent rights and investment opportunities for multinational corporations. As pointed out by the Environmental News Network, this could negatively impact such things as the availability of low cost drugs and pharmaceuticals, and the rights of farmers to store seed from one harvest to the next, or to breed cattle. Furthermore environmentalists, trade activists and other non governmental organizations argue that LDCs will be blocked from access to knowledge and potential to innovate and make technical change building upon existing scientific and technological discovery (Environmental News Network, 1994).

In this regard two key areas will be greatly affected: Pharmaceutical and biodiversity.

3.1.a Pharmaceutical: As reported by the Environmental News Network, most LDCs, such as India, do not require patenting of drugs or allow short term patent laws and exclude vital sectors such as food and health from monopoly control. This will change drastically with the IPR of the WTO, leaving developing nations at a great disadvantage. The Environmental Network News report goes on to point out that even though historically OECD countries only began drug patenting after their industries were strong: France (1958); West Germany (1968); Switzerland (1977 and Japan 1978) when it ranked 2nd in world production and controlled 8O% of its market, developing countries will be forced to restrain local technological initiative that might infringe on WTO/IPR rules. Hence with these new laws, LDCs will be locked out of this field even as their resources are exploited (i.e.: inadequate or no compensation for the use of the tropical plant and the biological material used in the production of the drugs. Dr. Vandan Shiva, Director of the research Foundation of Science, Technology and Natural Resources in India, argues that "the total contribution of wild germ plasma from the third world to the American economy has been $66 billion. Yet there has been no compensation to the indigenous people who shared their knowledge (as quoted in the Environmental Network News, 1994).

3.1.b  Biodiversity: MNCs now hold patents on hybrid seeds as well as seeds that are indigenous to the third world. They then charge the nations from which the seeds originated for the right to use them. The end result is that farmers will have to pay royalties to TNCs. Life forms and genetic material from the third world can be owned and marketed by biotechnology and pharmaceutical corporations under current US laws. (Mehta 1994).

Major oil companies are now involved in the patenting of seeds, they are also gaining much of the world's agriculture through the ownership of land and genetic engineering of crops. LDC farmers will be forced to purchase seeds and chemicals. For example, some EEC laws prohibit farmers from using non-patented seeds (Environmental News Network 1994).

With the addition of the GATS, TRIMS and TRIPS, the GATT stood as three disparate pieces of texts with no coordination. Neither was it strictly binding on its contracting parties. Therefore each could choose what aspect it would subscribe and which aspect it would ignore. There was therefore need for a legal umbrella " which would ensure that all of these agreement are legally binding as a single undertaking on all members". (Sutherland 1994). This umbrella was set in place with the creation of the World Trade Organization.

WTO, which was proposed by the European Union and Canada, and supported by Japan and the U.S., encompasses the GATT 1947, The Uruguay Round and a set of plurilateral trade agreements. With WTO, as Peter Sutherland, points out, "obligations are enforced by dispute settlement procedures common to all agreements, and are administered under the authority of a common institution." The need for enforcement of obligations to all members was important. The GATT 1947, up to the sixth and seventh rounds, did not have such a mechanism; countries could therefore choose to accept or ignore new extensions and commitments since there was no obligation to do so. This was especially the case with anti-dumping, subsidies, countervailing duty, customs valuation, and technical barriers to trade. WTO which replaces the GATT legal system eliminated different level of obligations (as under MFN) and free-rider. (Sutherland 1994) [The question of reasonable international labor standards was a hotly debated topic at the founding of the ILO in 1919. It also was incorporated in the Havana Declaration 1948, the forerunner to the GATT. However, with exception of the prohibition on prison (forced) labor, the issue was completely passed over with the establishment of the GATT.]

3.2 The WTO and the Dispute Settlement Mechanisms

The "teeth" of the WTO is its dispute settlement mechanism. This dispute settlement, set out in 27 sections and 143 paragraphs plus 4 appendices, is more comprehensive and more far reaching than under the old GATT. The dispute settlement of the old GATT (Articles XXII and XXIII) was very fragmented. It required no consensus. Its decisions could be blocked or avoided by a party to the dispute in question.

Though the foundation of the present dispute settlement is based on the principles of GATT Article XXIII, it is a much stronger and potentially more effective dispute settlement mechanism. This is so for two reasons. The first is that there is now a specific procedure for considering complaints (Annex 2 of WTO); the Dispute Settlement Understanding of 1994 establishes a dispute settlement body (the WTO General Council). Secondly, unlike the previous dispute settlement that tended to waver between a legalistic (ajudicative) model and an antilegalistic (pragmatic or negotiated) model, the WTO dispute settlement has more of a judicial emphasis and is automatic.

The shift towards a legalistic model represents a reversal of the European position, and consequently, a shift towards the position of the US and some developing countries. Traditionally, the European countries and Japan opposed an ajudicative emphasis on the grounds that the GATT was not a code of conduct but a commitment between contracting parties who had an agreement to work-out mutually acceptable solutions to disagreements. Today they see an advantage in the legalistic framework--it is a way of reducing unilateralism by the U.S.

In the past, the developing countries favored the legalistic model on the grounds that it offered more effective protection of their rights than the pragmatic model that could be more easily dominated by the more powerful countries. However, given the all encompassing and binding nature of the WTO, these countries maybe less sanguine about an adjudicating system, wherein the director General may, without the complaining countries' approval, appoint the three-member panel to review their complaint. Another reason for reservation or developing countries may have to do with the potential of the dispute settlement system to impinge directly on national sovereignty.

Unlike its predecessor the GATT, the WTO has far reaching implications for the domestic and international labor markets, social policies and environmental protection. Like the GATT, WTO also aims to extend the market model of "high volume production, standardized production and aggressive expansive marketing techniques across the globe (Environmental Network 1994)," Unlike the GATT, WTO will be able to this apparently without regard for national social and economic and environmental priorities, This presents a number of critical areas of concern for women's groups, labor organizers, environmentalists and civil society in general. Three broader areas of concern will be discussed in the next section: a social clause and WTO, the link between the environment and trade, and the link between free trade and growth.

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