Setting the Record Straight:
Free Trade, NGOs and the WTO
by David Robertson
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The anti-globalisation coalition conceals some very powerful entrenched interest groups opposed to trade liberalisation. Multilateral trade rules are still important, but the new political forces in play are dangerous.

One of the more striking features of recent anti-globalisation demonstrations has been the range of accusations levelled against the World Trade Organisation (WTO) for its part in the globalisation process.Yet the complaints from non-government organisations (NGOs) show little or no knowledge of the WTO agreements or how they operate. Worse, inconsistencies among the NGOs amount to serious contradictions in the anti-globalisation coalition.

Environment lobbies regard trade and economic development as a threat to nature conservation and fear that their single-issue solutions will be rejected when governments are exposed to the benefits of global arrangements. Trade unions in manufacturing industries that have come under cost pressure from newly industrialising economies want to preserve their old jobs and privileges and, above all, wage relativities. This is their argument for ÔfairÕ trade.

Attempting to enforce universal labour standards by applying trade sanctions, however, could increase poverty in countries where labour productivity is still low. The poorest developing countries would thus be deprived of the opportunity to develop economically and to compete internationally.

Oddly enough, this danger does not even seem to concern the development NGOs. Doubts about the justification for forcing outside standards on developing countries are absent. But the economic costs could be significant and could bring the present global prosperity to an end. Look what happened the last time sanctions and trade wars were practiced in the early decades of the 20th century. What began with protectionism ended in the world economic crisis of the 1930s, mass unemployment and world war.

The real role of the WTO

The case for free trade is based on the benefits of voluntary exchange, the division of labour and individual freedom. As long as there are differences in the comparative costs of production between countries, trade will take place with mutual benefit to the participants.

At a global level, free trade promotes economic growth. It leads to job creation, forces companies to be more competitive and lowers prices for consumers. It also gives poor countries the opportunity to develop by attracting foreign capital and technology, and, by facilitating the spread of prosperity, creates the conditions in which democracy may grow.

However, anti-globalisation protestors charge that trade liberalisationÑsupervised by the WTOÑhas undermined employment and wages in OECD countries, lowered environmental standards, increased disparities between rich and poor nations, and weakened democracy and national sovereignty.

The WTO is also accused of being supranational (its ÔdecisionsÕ overriding national governments), untransparent (its decisionmaking processes being hidden from the public), undemocratic (ignoring NGO demands and minority interests), and is charged with ÔmarginalisingÕ poor countries (anti-development).

These assertions are at best parodies of reality, but they get wide publicity and attention in the media. Clearly, ignorance of the functions, structure and decisionmaking of the WTO continues to drive the anti-globalisation coalition. Few even bother to look at the WTO agreements and procedures, or its history. The institution is guilty by association with globalisation.

The facts about the WTO

Free trade has never been a specified goal of the GATT or its successor institution, the WTO, although trade liberalisation has been an important instrument in promoting economic growth since 1950.

The establishment of multilateral trade rules to reduce trade conflicts and to lower commercial uncertainties has been achieved by introducing reliable and simple rules into the GATT-WTO. There are very good reasons for keeping the international trade regime simple: only simple rules are effective.

The WTO is built on the foundations laid by the General Agreement on Tariffs and Trade (GATT 1947). This was a contract (among 23 governments originally) to eliminate non-tariff barriers to trade and to liberalise tariffs progressively by negotiating reductions (concessions) based on reciprocity. The principal rules since 1947 have been transparency of trade policies and non-discrimination in trade among members.1

From the outset, governments were intent on preserving their sovereignty. Many exceptions are included in both the GATT and WTO agreements to protect national interests such as health and safety, national security, moral standards, natural resources, etc.

Escape clauses also safeguard member economies from unacceptably disruptive imports caused by foreign subsidies, dumping or unexpected import surges. After amendments in the 1960s and 1970s, developing countries were permittedÑalmost certainly a mistake in retrospectÑto increase trade protection to promote economic development (infant industries, balance of payments protection, etc).

The WTO agreements, which took effect in 1995, extend the basic GATT rules to cover trade in services, intellectual property and dispute settlement procedures.

Neither WTO agreements nor WTO rulings become national laws without domestic legislation. All WTO decisions are made by the General Council, which meets at the level of ministers or permanent representatives in Geneva.

The WTO is an intergovernmental agreement and decisionmaking is based on consensus, which is more demanding than majority decisions. The rules agreed upon constrain nationalist economic opportunism of the sort that did so much harm in the first half of the 20th century.

The WTO is not a supranational organisation. The Secretariat acts as directed by the Council, which in turn is responsible for all decisions and the wording of agreements. Any national policies not consistent with WTO rules can be taken to the dispute settlement body for arbitration if members cannot resolve the problem by consultation.

WTO dispute settlement

The dispute settlement understanding (DSU) has given real meaning to WTO agreements, because violations carry consequences for offending economies. Unlike the GATT provisions, where enforcement required unanimous consent of the Council and where a veto could block a decision, the WTO rules allow decisions on disputes to be implemented unless there is an unanimous rejection. A permanent appellate body reviews disputed panel rulings to establish consistent interpretations.

The environmental NGOs and the labour unions have taken a special interest in the WTO since they became aware of the DSU, as they see WTO rules as opportunities to introduce new international standards for the environment, labour and other social issues.

The allusion to international law also attracts NGOs, who cannot obtain sufficient support through legitimate political processes, notably parliamentary elections. International agencies allow them to seek power over national governments.

In its five years of operation, the DSU has been invoked over 200 times. Less than a quarter of disputes where consultations were requested have not been settled amicably and went to dispute panels and appellate body rulings.

The two major exceptions concern US complaints against the EU over imports of Central American bananas and over imports of hormone-treated beef. In both cases, the EU refused to amend its regulations to conform with WTO requirements and the US Administration introduced WTO-approved trade sanctions according to DSU enforcement procedures.

The threat to liberal trade

Resort to trade sanctions has had two unsatisfactory consequences. First, if the trade sanctions (Ôsuspension of tariff concessionsÕ in WTO parlance) do not elicit a favourable response, trade protection rises. This contradicts the principal aim of the WTO, which is to reduce trade barriers.

Second, the use of trade sanctions to enforce DSU rulings has alerted NGOs to new opportunities to interfere in trade. Environmental groups and labour unions (plus some human rights activists) see scope for using discriminatory trade sanctions against countries failing to meet what they regard as appropriate ÔstandardsÕ. Advocates of international labour standards, for example, aim to use trade sanctions to enforce compliance with Ôinternational standardsÕ. However, no OECD government has yet been prepared to confront the 100 plus developing countries in the WTO.

At the Singapore Ministerial Council in December 1996, member governments agreed that International Labour Organisation (ILO) ÔcoreÕ labour standards should be observed. But it was also recognised that economic growth and development, fostered by increased trade and trade liberalisation, would promote these standards. The Ministerial Council therefore rejected the protectionist sentiment behind calls for labour standards and agreed that the comparative advantage of developing countries in labour-intensive production should be safeguarded.

Developing countries are also opposed. They do not want first world standards for the environment, labour, intellectual property, industry, and social welfare if the cost is deeper poverty, slower growth and more dependence on OECD charity.

Anti-globalisation NGOs express concerns about the political rights of minority groups, including citizens of developing countries, yet the standards they demand are seldom helpful to the poor in non-OECD countries. MexicoÕs former President, Ernesto Zedillo, expressed this concisely after the Seattle meeting when he said:

A peculiar alliance has recently come into life. Forces from the extreme left, the extreme right, environmentalist groups, trade unions of developed countries and some self-appointed representatives of civil society, are gathering around a common endeavour: to save the people of developing countries fromÑdevelopment. (quoted in Lukas 2000)

ÔGlobal civil societyÕ?

Representing a broad array of groups and lobbyists, the anti-globalisation coalition has adopted the term Ôglobal civil societyÕ because it suggests community service based on voluntary organisations.

Nothing could be further from the truth. Although some NGOs are nationally based, they usually have international links and act internationally. They therefore lack the traditional obligations of citizenship and the legal status associated with Ôcivil societyÕ.

Moreover, most NGOs are run centrally by small powerful elites and are unaccountable to anyone. They have failed to gain representation in parliament. In fact, the term non-government organisation is a misnomer because most NGOs are funded, at least in part, by government agencies. Their political stances are often disguised by well-meaning objectives, but exposed by the bullying mechanisms they use to achieve their ends. Most are little more than single-issue lobby groups gathered into a coalition against mostly imagined enemies. Trade liberalisation is one of these enemies.

Global governance aspirations

NGOs believe that a Ôdemocratic deficitÕ has developed because globalisation has dispersed decisionmaking outside national borders. ÔGlobal civil societyÕ therefore advocates Ôglobal governanceÕ. It is an instrument for political takeover.

This is no doubt why NGOs are welcomed within the United Nations (UN) family. The NGOs lobby national governments on behalf of UN agencies. This gives them status in the international community and allows them to pursue their political aims, which tend to match the self-interests of most UN officials.

In the case of the WTO, NGOs try to bolster their case for participation by misrepresenting it as an instrument of Ôpost-sovereign governanceÕ. The WTO has been described as Ôsupranational, able to by-pass governments and to pursue global social and ecological objectivesÕ (Scholte et al. 1999). No evidence is provided, but this propaganda allows the NGOs to present themselves as a Ôcountervailing forceÕ.

The rise in NGO influence has been assisted by the unwillingness of national governments to confront them at home, passing them off as an international phenomenon. This has encouraged the NGOs to seek influence in intergovernmental agencies. Eventually, governments will have to confront the NGOs in international agencies, including the WTO, if they wish to retain national sovereignty.

Many national governments and international organisations are bullied into supporting environmental and labour NGOs. Unelected EC officials support single-issue groups in an effort to stall the liberalisation of trade in agriculture (Rabkin 1999). The EC gave financial support to Greenpeace to subvert the Kyoto negotiations by promoting a position on greenhouse gases that served European industrial interests (Kellow 2000). This amounts to a bureaucratic takeover of international agencies.

The environmental lobby

Punitive trade policies designed to punish developing countries that do not adhere to the standards of high income countries would only increase the very gap between rich and poor nations for which the NGOs blame the WTO. This is best illustrated by the contrast between NGOs from developing countries and those that claim to promote development, and the environmental and labour NGOs.

The development NGOs divide around two traditional political poles. Most support economic reforms and improved access to OECD markets as the driving forces behind economic development in poor countries. They are inspired by the highly successful export-led growth strategies of East Asia, where real per capita incomes have increased by 4-6% p.a. since 1960. And indeed, research shows there is a clear correlation between GDP per capita and openness to international trade and development (Lukas 2000).

Environmental NGOs in OECD countries have been trying for many years to employ trade restrictions in their pursuit of environmental objectives. When the Uruguay Round Final Act (1994) led to the establishment of the WTO Committee on Trade and Environment (CTE), ÔgreenÕ NGOs believed that they would be able to use trade policies to support their environmental goals.

One popular proposal involved the use of trade sanctions against countries with inferior environmental standards, but this ran foul of the fundamental WTO non-discrimination principle. Uniform standards would not allow for differences in income levels, cultural and community priorities, climate and geography, demographic structures, industrial structures, etc. They would erode national sovereignty.

Legitimate transnational environmental differences should be addressed through global environmental agreements. Imposing trade sanctions on poor countries that do not comply with prescribed production methods or environmental standards would divert resources from development, which, perversely, would increase pressures on the environment.

As economic progress raises living standards, it also tends to raise national environmental standards as more resources can be devoted to reducing environmental degradation. Using trade sanctions as a punitive instrument would reduce trade and growth, and probably increase environmental damage.

The labour lobby

Linking labour standardsÑi.e. uniform conditions of employmentÑto WTO sanctions would increase protectionism. Labour unions in rich countries with declining industries do not try to disguise this basic fact.

In OECD countries, the case for uniform labour standards is presented in two ways: either as a means to overcome ÔunfairÕ trade because low-wage labour undercuts OECD production costs, or as low-wage labour holding down the wage levels of unskilled labour in OECD countries, thus increasing income disparities.

Since the ILO is already charged with raising labour standards around the world, the only reason to introduce labour standards into the WTO is to gain additional leverage through trade sanctions.

Yet raising trade restrictions against labour-intensive exports from poor countries will not help the workers in those countries, many of whom would lose their jobs and be forced into even deeper poverty. Similarly, those who seek to drive children from the workforce by using trade sanctions would lower family incomes and drive the children into prostitution or scavenging, and even premature death. There are seldom schools for these children to attend. Besides, most child labour is used in the non-traded sectors of the economy, which makes trade sanctions unlikely to be effective.

Implementing labour market reforms (minimum wages, health insurance, limits to working hours, rights of association, use of child labour, etc.) depends on raising living standards and productivity. Only that way are surpluses produced to finance social reforms. OECD studies have shown a positive association over time between sustained trade reforms and improvements in core labour standards (OECD 1996).

The safest and surest way to promote labour standards in non-OECD countries is for OECD countries to remove all trade restrictions on labour-intensive imports. Yet these are the sectors where tariffs (and quotas) are still the most restrictive, because liberalisation would require adjustments from the workers and the unions. To prevent such structural adjustments, unions pursue labour standards in the WTO.

The WTO in new circumstances

The WTO is facing a new political landscape, not least because NGOs have identified new political opportunities. A first step for the WTO under this anti-globalisation threat is to launch a new Round of trade negotiations to fill some of the gaps that NGOs are trying to exploit. The agenda for the new Round should be made manageable by removing many of the controversial new issues.

Developing countries now make up three quarters of the WTO membership. They demand a review of Uruguay Round outcomes before embarking on a WTO round of negotations. To reassure developing countries, the OECD governments will have to begin confronting NGOs over their more provocative proposals in order to discourage resort to mercantilist instruments such as trade sanctions. Yet a number of major governments are preoccupied by domestic political matters. These include the internal EU conflicts over enlargement
of its membership. As the WTO is only an intergovernmental agency, it is national governments that determine the WTO agenda. At present, regional trade blocks and NGOs are making the running.

Regional trade agreements are now so widespread that multilateral agreements have become little more than the foundation on which to build these complex arrangements for regional integration, including the ÔharmonisationÕ of national policies. These processes strengthen interventionist bureaucracies like the European Commission. As international negotiations become more technical and specialised, national bureaucracies also grow.

This is evident in present EU proposals for the WTO agenda to include investment rules, competition policy and the Ôprecautionary principleÕ2 for the environment. Yet there is no compelling case to include investment rules or national competition policy on the agenda. Introducing the Ôprecautionary principleÕ in WTO deliberations on the environment or attempting to find a new agreement on biodiversity would also be unwise when so many questions remain unanswered. In any case, developing countries have other priorities. Moreover, the Ôprecautionary principleÕ would be a blank cheque for opportunistic interventionism by NGOs, which would quickly undermine WTO agreements.

NGOs favour bureaucratic approaches. After all, lobbyists do not thrive in transparent markets. The larger the negotiating group, the greater their chance of being included. This is consistent with their commitment to Ôglobal governanceÕ built around the UN model.

The present agenda of the WTO is loaded with issues that lend themselves to the bureaucratic approach and large committees. This alone should convince WTO supporters that the agenda needs to be pruned and some subjects diverted elsewhere. The first task should be to remove outstanding weaknesses already identified in the multilateral trading rules and to improve enforcement procedures for dispute settlement.

Conclusion

The WTO is no longer a simple trade contract. The WTO Council has allowed social issues onto the negotiating agenda using tenuous links to trade policy. This has placed the organisation in the vanguard of political skirmishing over globalisation. Multilateral trade rules remain important, but new political forces now in play are dangerous.

As a medium-sized OECD economy with little bargaining power, and buffeted by the revival of protectionism in Europe, Japan and the United States, Australia depends on multilateral rules to protect its trade interests. AustraliaÕs participation in a strong WTO and an increasingly integrated global economy provides support for national independence and should not be sacrificed to lobbying by NGOs with sinister aspirations for political power.

References

Kellow, A. 2000 (forthcoming), ÔNorms, Interest and Environment NGOs: The Limits of CosmopolitanismÕ, Environmental Politics 9 (3).

Lukas, A. 2000, ÔWTO Report Card III: Globalisation and Developing CountriesÕ, The Cato Institute, Washington D.C.

OECD 1996, ÔTrade, Employment and Labour StandardsÕ, Organisation for Economic Cooperation and Development, Paris.

Rabkin, J. 1999, Euro-Globalism: How Environmental Accords Promote EU Priorities into ÔGlobal GovernanceÕÑand Global Hazards, Centre for the New Europe, Brussels.

Scholte, J.A., R. OÕBrian, and M. Williams 1999, ÔThe WTO and Civil SocietyÕ, Journal of World Trade 33(1): 107-123.

About the Author
David Robertson is John Gough Professor and Director of The Centre for the Practice of International Trade, Melbourne Business School. This is an extract from a recent Issue Analysis paper titled Setting the Record Straight: Free Trade, NGOs and the WTO.Ê

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