Business

HOW THE WTO WORKS

There are rules—and there is Washington

BARRY CAME March 22 1999
Business

HOW THE WTO WORKS

There are rules—and there is Washington

BARRY CAME March 22 1999

HOW THE WTO WORKS

SPECIAL REPORT

BARRY CAME

They are the keepers of the modern flame, adepts of the arcane rules and rituals of global commerce. There are not many, no more than a few hundred diplomats in all, each accredited to the World Trade Organization by one of its 134 member nations. Geneva is their base, in a handsome building of brown stone by the shores of the city’s great lake. On this frosty Swiss morning, however, they are an unhappy lot as they gather for a conference inside the building’s great hall. Bananas are the cause of their distress, the unlikely issue at the heart of a looming trade war between the WTO’s two behemoths, the United States and the 15-country European Union. It does not take long for the general discontent to surface. And it is Canada’s delegate—Ambassador John Weekes—who gives voice to it. “I’m afraid,” he later confesses with a sheepish chuckle, “that I tweaked their noses a little bit.”

Much to the delight of the assembled diplomats, the Canadian ambassador pointedly reminded the representatives from the United States and the EU that, while their bilateral relationship was vital to the still fledgling WTO, the organization did not belong only to the world’s two major trading entities. “I told them,” Weekes recalls, “that it was perhaps useful to reflect on the fact that, since direct U.S.EU trade only amounted to 572 per cent of world trade, maybe it was time for us to look after the other 95 per cent of our business.” His remarks struck a chord among many of the other envoys present, most

IN GENEVA

of whom have watched in mounting dismay the steady escalation of the conflict between America and Europe over trade in a product neither side actually grows, where no domestic jobs are directly affected and which amounts to substantially less than one per cent of their $600 billion in annual bilateral commerce. “It’s all rather absurd,” complains Weekes. ‘We have a helluva lot of business to deal with and, quite frankly, this banana dispute has been sapping all of our energies for far too long.”

Trivial as it might seem, however, the unfolding transAtlantic banana war is both a warning of a critical fault in the world’s multilateral trading system and a harbinger of even more intractable problems to come. Canada has an immense stake in how the crisis plays out, because 40 per cent of its economy now depends on trade. Just about any Canadian exporter could one day find his or her product caught up in a dispute over the rules of the game—making the nature of the referee crucial. To many diplomats in Geneva, the very fact that the United States is now poised to impose sanctions on $780 million worth of carefully chosen European imports—everything from Scottish cashmere sweaters to Italian pecorino cheese—is a sign of a breakdown of one of the WTO’s central pillars: its elaborate dispute settlement procedures. Even more ominous, the critics say, is the disturbing trend the move shows in U.S. trade policy— Washington’s willingness to throw its weight around in pursuit of goals that have more to do with domestic political pressure than foreign com-

There are rules—and there is Washington

mercial objectives. Europeans, especially, are quick to point out lessons for Canada. ‘Today, it’s Caribbean bananas; tomorrow, it may be Canadian magazines,” warns Roderick Abbott, the EU’s ambassador to the WTO. “The two disputes are quite different in most ways, but they do share this in common: if you don’t do what the Americans want you to do, they threaten you with all kinds of dire punishment.”

Not surprisingly, the American delegation in Geneva does not share that view. While U.S. Ambassador Rita Hayes declines to discuss Canada’s magazine policy, on the grounds that it is currently the subject of ne gotiations between Washington and Ottawa, she is more than willing to defend U.S. trade positions, in particular those relating to the dispute over bananas. “It’s not really about bananas, it’s about rules,” maintains Hayes. “And the system only works if everybody plays by the same rules.” The EU, she argues, has been breaking—or at least bending—the rules for years to support small-scale banana growers in former European colonies in the Caribbean, Africa and the Pacific who are unable to compete against mass-produced Latin American bananas, grown and distributed in large part by U.S. multinationals. On three occasions, the EU has emerged on the losing side in international rulings on the legality of its complex banana regime, which sets quotas for various exporters—twice in panels established under the General Agreement on Tariffs and Trade and once at the WTO, GATT’s successor. In the wake of the most recent WTO ruling, the EU modified its banana regime.

But Washington, which values the American loss at $780 million, dismisses the changes as “cosmetic” and is again mounting a challenge. A WTO investigating panel is scheduled to issue a ruling on the EU’s policy later this month. In the meantime, the Americans, weary of what Hayes describes as an “endless loop of litigation,” are prepared to slap 100-per-cent tariffs on a range of European imports if the WTO, as is widely expected, once again rules against the EU. “We’ve lost jobs and money,” says Hayes. “And our Congress is very unhappy. We wouldn’t be here if the EU had shown some respect for the rules.”

Those rules are the essence of the World Trade Organization, the edifice, built upon the foundations of GATT, that sprang to life on Jan. 1,1995. It grew out of a gruelling set of negotiations known as the Uruguay Round, T/i years of painstaking bargaining between the world’s trading nations that lasted from 1986 until 1994. Unlike GATT, which dealt mainly with trade in goods, the WTO’s agreements also cover trade in services, as well as intellectual property—inventions, creations and designs. The WTO’s regulations are essentially binding contracts between governments, incredibly lengthy and complex legal texts covering a wide range of trading activities in agriculture, banking, telecommunications, textiles, industrial standards, food sanitation regulations and the like. “The WTO is a strange beast, a rules-based organization designed for the express purpose of helping world trade flow as freely as possible,” says Roy MacLaren, the former Canadian trade minister

who is now Canadian high commissioner in Britain and one of four candidates in the current race to succeed Italian Renato Ruggiero as director general of the WTO.

MacLaren likes to claim what he has described in the past as “a certain paternity for the WTO” in that, as trade minister, he led the Canadian delegation during the crucial final phase of the Uruguay Round and later guided Canada’s implementing legislation through Parliament. It was MacLaren who signed Canada’s undertaking to join the

WTO at a meeting in Marrakesh, Morocco, in 1994. “We were moving into uncharted waters at the time,” he now recalls. “But it was pretty clear to most of us back then that one of the most lasting achievements was likely to be the WTO’s dispute settlement system.”

Unlike the GATT, the WTO was equipped with a mechanism to settle differences between trading nations. While the GATT had the power to adjudicate disputes, there was no means to enforce whatever rulings were delivered. “Member states were under no obligation to abide by any of the GATT’s decisions,” notes Weekes, who served as Canada’s ambassador to GATT during four years of the Uruguay Round negotiations. “There were no fixed timetables, rulings were easily blocked, sometimes just ignored. Cases could often drag on forever with no conclusive result.” That is no longer possible, or, at least, is much more difficult. The WTO agreement that all member states sign lays out in considerable detail a dispute settlement process and timetable that, under normal circumstances, requires about a year to reach a resolution, 15 months if the case is appealed. It begins with consultations and ends with WTO authorization to proceed with retaliation of the sort the United States is now contemplating in the banana conflict with Europe and threatened in the magazine dispute with Canada. In between, the process is carefully staged, involving the appointment of three-to-five-member panels of outside experts to consider the evidence and issue recommendations, and culminating in ultimate recourse to what is known as the appellate body, a seven-member tribunal of recognized authorities on international trade who serve four-year terms. The WTO’s current appellate body is composed of an American attorney and former congressman, a judge from the Philippines, a trade diplomat from New Zealand and another from Uruguay, and three professors of international law, from Germany, Egypt and Japan.

Until the outbreak of America’s banana war with Europe, the system worked remarkably well. During the entire halfcentury of the GATT’s existence, 300 disputes were lodged with the organization. In the four years since the WTO’s inception, it has already handled 163 cases. The WTO’s two major players have made good use of the mechanism. The United States has been involved in 78 cases, the EU in 68 (some of which overlap); each has lodged roughly twice as many complaints about others as others have about them. Canada has been the complainant in 13 cases, respondent in another seven. “We’ve managed to chalk up a few victories,” says Weekes, “even if it is only the defeats like

the magazine issue that seem to get noticed back home.”

Canada won a notable tussle with the EU, for example, over scallops in 1996. Working in conjunction with Chile and Peru, the Canadians managed to overturn a French attempt to prevent anything but European scallops from carrying a coquille Saint Jacques label, a move that would have severely lowered the value of the Canadian and South American products on the European market. And Canada is not alone in coming out best in disputes with the trading superpowers. Costa Rica went all the way to the appellate body to force Washington to lift restrictions on the sale of Costa Rican underwear in the United States. In similar fashion, Venezuela and Brazil used the WTO procedures to pressure the United States into revoking environmental regulations that required imported gasoline to meet stricter emission standards than domestically refined American products.

What the WTO system has been unable to avoid, however, is the potent combination of slowing growth in global trade and rising political pressures within major trading nations. Bananas are a case in point in both instances, as is, to a lesser extent, Canadian legislation on foreign magazines. “Many of these current problems have arisen,” notes MacLaren, “when WTO regulations have the effect of reaching into the internal concerns of some of the major trading nations.”

In the European view, the U.S. determination to push the issue on bananas is fuelled in large part by the powerful political influence in Washington of Carl Lindner, chairman of Chiquita Brands International Inc., the world’s leading distributor of bananas. Lindner is widely known at home and abroad as a large contributor to both the Republican and Democratic political parties. His company has also been the major loser under the EU’s banana regime. ‘The banana trade,” maintains EU ambassador Abbott, “is really an incestuous business, controlled by four major multinationals, three of them American. The issue here is greed, aided and abetted by a weak administration in Washington with no real trade policy. It is no accident that the United States is currently involved in trade disputes with its three major trading partners, with us over bananas, with Canada over magazines and with Japan over steel.”

Whatever the validity of that judgment, U.S. policymakers do face rising protectionist sentiment at home prompted by a burgeoning American trade deficit. “The world trade picture is very sombre at the moment,” notes a worried Rubens Ricupero, the Brazilian secretary general of the United Nations Conference on Trade and Development, whose offices in Geneva look down upon the WTO’s lakeside headquarters. “The U.S. economy is the only economy in the world right now that, like some great black hole, is sucking up all the planet’s available imports. What’s more, there is no relief in sight. Growth in Europe is faltering, Japan is stagnant. The developing world is prostrate. It is a situation where the kind of mutual recriminations we are now seeing are only likely to get worse rather than better.” In other words, the custodians of global commerce at the World Trade Organization had best hunker down. They may soon have more to worry about than bananas. □