Globalisierung als Chance II

Blick auf die Weltgesellschaft

Hans-Peter Werner
Political Direction through Supranational Organizations

global2.gif (12765 Byte)


Hans-Peter Werner arbeitet als Pressesprecher bei der World Trade Organization (WTO) in Genf.

In recent economic history, 1998 will certainly go down as the year of intense debate on the pace, scope and socio-political effects of globalization.

I am especially pleased to participate in a seminar which sees globalization as an opportunity to increase economic development and therefore peace and stability - and not as a threat to national interests or security. In the debate on the pros and cons of globalization, many have pointed out that it is indeed an irreversible and unstoppable process. This is cause for concern for those who feel that national governments are losing control over capital flows and investments and that these are increasingly becoming the domain of multinational corporations and financial institutions.

In this context, many economists have recently cited the WTO and the multilateral trading system it represents as being absolutely necessary, especially now when certain key financial markets have been under attack and many economies in south-eastern Asia are suffering from economic deflation. In their search for solutions to the global economic crisis, the IMF, the World Bank and the G7 have been discussing the need for a new architecture and framework - according to Tony Blair - to address the current crisis and to find ways of avoiding them in the future. However, aside from the recent cash injections to the IMF by the G7, little progress has been made in really exploring the underlying problems of managing financial flows. A new investment report released three days ago by UNCTAD states that globalization has not been hampered by the recent economic crises. But do we know how to avoid this from happening again? We couldn't foresee this crisis. What makes us think we are even prepared to handle the next one?

At the WTO, we have been following these events with key interest. While we know that the WTO or the rules-based trading system it represents is not the direct cause for the current economic difficulties, we know that it has a key role to play in finding a solution to this problem. In order for those countries to be able to recover economically, they will have to trade. Because their currencies have been devalued, their products are now even more competitive than they were a year ago. The inherent danger here is that industrialized markets in western Europe, North America and Japan will resist accepting a flood of products from these countries. Steel workers in Europe and the US are already calling for more protection against foreseeable surges in steel products coming from Brazil, Japan and Russia. The worst thing that could happen at this delicate stage is for countries to begin putting up new trade barriers against each others' products. That is why the commitments the 132 governments have made in the WTO to keep their markets open and to only use safeguard clauses for limited amounts of time and only under certain circumstances are so important. Any change in the bound tariffs on goods, industrial or agricultural products, or any deviation from WTO rules could trigger the WTO's dispute settlement body to investigate a breach of a member's WTO obligations.

I use this example because it is directly related to the title of my intervention - political direction through supranational organizations. The WTO is composed of governments which have entered into a contractual agreement with each other. This agreement is based on national treatment and most-favoured nation application of the best trade terms provided by each member. In this sense, the WTO Agreements constitute an international business treaty underscored by the rule of law. Each of the commitments made by WTO member governments had to be ratified domestically.

The worst thing that could happen is putting up new trade barriers against each others' products
In 1994, a year after the conclusion of the Uruguay Round and a year before the entry into force of the WTO, governments had to pass the necessary domestic legislation so that they would be in conformity with the WTO's obligations. Many governments debated over the various new rules and agreements. Even in those governments which favoured the creation of the WTO, there was ample debate about a possible loss of sovereignty. In the US, for example, congressmen and senators felt uneasy with a system where smaller, less economically powerful countries like Venezuela and Brazil could actually challenge the US in a trade dispute over reformulated gasoline and win as they did in 1996.

Today, I would like to look at this question of political direction through supra-national organizations from three different angles: the first concerns loss of state sovereignty in international trade policy-making. The second focuses on the retention of national rights and power. Finally, I would like to discuss the restraints which national governments can and do exercise on so-called supra-national organizations like the WTO.

1. Loss of Sovereignty in International Trade Policy-Making

The best possible way for nations to have peace in their commercial relations is to sign and abide by an international set of trade rules. This goes for nations in time of war and it certainly holds true for large trading nations in time of peace. The still-born GATT of the 1950s, the Tokyo Round codes of the late 1970s and the trade policies of the 1980s - which failed to address the vast gaps in disciplines on trade in agriculture, textiles and most commodities - all had one thing in common: they were half-hearted attempts to have rules. But these rules could actually be bent or broken at any time by any GATT member. There was no binding dispute settlement system. They were no anti-dumping and subsidies agreements which applied to all of the 128 GATT member governments. There was no mechanism to stop some agricultural products from being banned outright - such as the permanent rice embargoes in Japan and Korea.

In this sense, the Uruguay Round, which lasted from 1987 to 1993, was an ambitious proposal to address what had gone wrong in the post-war trading system. As it turned out, it was also the most important international economic negotiation in the world's history. For the first time, governments negotiated multilateral agreements not only on industrial goods and agricultural products but also on commercial services and trade-related aspects of intellectual property rights. In addition, they developed the basis for settling their trade disputes and established an appellate body with a permanent membership of seven internationally recognized trade lawyers to examine disputes and issue dispute panel reports.

The legal texts comprising the Uruguay Round constitute some 28,000 pages. Each page represents an obligation by one government vis-a-vis its trading partners. It hardly can to be denied that by making such concessions" to each other, governments ceded some of their sovereign rights to act as they please. But what they got in return, was deemed by all to be worth much more than what they gave up. That's why these agreements were signed and ratified and why the WTO was created.

However during the Uruguay Round, there were forces at work other than pressures being exerted by one government on another. It is no secret that big business had an input into writing the TRIPS agreement, that industrial lobby groups had sufficient input into the negotiations on anti-dumping to allow the US to accept the final draft, and that agricultural lobbyists exerted sufficient pressure on their governments not to set their tariff rate quotas too low or to cut subsidies by too much. Some say that big business is still too prominent in the work of the WTO. But I must repeat that in essence the WTO Agreements constitute a commercial treaty, a business deal based on the rule of law. That is why governments often seek the advice of their industry experts so that they can come up with the best possible agreement. This was especially true in 1997 when WTO member governments entered into final negotiations on basic telecommunications services and financial services. Because of technology and the need to regulate capital flows, governments can no longer work in isolation. They must work hand in hand with experts from industry.

Moreover, there are some inherent GATT rules and even more in the WTO which recognize that some balances must be struck with other global needs, such as more favourable treatment for developing and least-developed countries, the interface between trade and environment, and the debate on sustainable development. Here, governments work with other government departments, non-governmental organizations and other groups who could have an input into shaping a national" agenda in the hopes of reaching an international agreement. Here too, domestic positions must be aligned with multilateral concensus.

In all these cases, governments are not forced to enter into international obligations, but are encouraged to do so. This system works in trade policy, because in general, governments feel they are getting more when they participate in an international forum than if they act alone. Yes, it requires governments to give up some of their sovereign rights, but they do this to benefit from the collective whole, which is so much larger of course than any influence they could hope to wield by themselves.

2. Retention of Rights in National Trade Policies

If WTO Member governments gave up some of their sovereignty in international trade policy, they still maintain plenty of scope to structure their domestic economy, to safeguard the health and safety of their citizens, to pass standards aimed at improving environmental conditions, and to ensure the national security of their borders.

Trade policy is a sovereign matter even though it certainly helps a government if it drafts its trade laws in such a way that it takes its key export markets into account. Ease of access to markets brings economic benefits, but implies the need to maintain full transparency, efficient and objective customs control, and good distribution networks. The more a government meets the needs of those whose products it imports, the more leverage it can hope to gain in other markets of vital importance to it. An example here is the US/EU trade relationship. Aside from having many zero-for-zero tariffs in products such as chemical, medical equipment, pharmaceuticals, and even office furniture, the zero for zero formula also applies - since mid-1997 - to a wide variety of information technology products. The two states are each other's best trading partners and it is in their own interest to have a healthy relationship. The two are now also discussing mutual recognition agreements involving future rules where if a product has been tested in one market, it then should be approved for sale and consumption in the other. However, this too should be conducted under the WTO's most-favoured-nation principle. A bilateral agreement should then be structured in such a way it could apply to all other WTO members.

Another area where governments can routinely exercise their rights is the General Agreement on Trade in Services (or the GATS). While similar pressures exist to open markets further in key service sectors such as telecommunications and financial services, there is no obligation by any one country to do so. Many least-developed and developing countries opened their markets to foreign suppliers of tourism services, where they felt they could attract foreign investment and hard currency from persons vacationing in their country. But many did not open their markets to foreign banks or telecommunications companies. Here they felt they could not compete, and were neither ready nor willing to allow such a degree of competition in their markets. Perhaps now that many have realized the economic benefits of opening up, more developing countries will make more concessions in the next round of service negotiations, scheduled to begin in 2000.

Governments are also free to set standards on food safety, or even the types of plastics used in children's toys, or the fibres used in seat belts for automobiles. Under the sanitary and phytosanitary agreement, governments may set standards for food and medicines which could represent the highest standard in the world. Other exporters to that country would have to meet the standard in question in order to have access to that market. The same holds true for setting environmental standards, for example, on how clean" gasoline should be. But governments cannot discriminate between products which are imported and products which are produced domestically. The DSB has received numerous requests for consultations on disputes involving national treatment discrimination. In every decision, national treatment/non-discrimination principles were upheld.

Differences in the application of standards have also given rise to major differences between large trading nations. One example is the complaint by the US and Canada against the EU. This case concerns the beef dispute over the EU's import embargo - in place since 1986 - against beef treated with natural growth hormones. The panel and appellate body panel recommendations sided with the US and Canada on this issue, mainly because the EU could not prove that the hormone in question was harmful for human consumption. I use this example to show that while countries can exercise their sovereignty in setting standards, they can not set unrealistic standards or ones which are not supported by scientific evidence. Hence, while there is a freedom to act, it must be within scientific boundaries. Otherwise, trade could effectively grind to a halt, resulting in hundreds of millions of dollars worth of lost market opportunities. The experts examining the beef dispute did not work in isolation. They based their findings on research conducted by the Codex Alimentarius, the scientific research branch of the Food and Agricultural Organization in Rome. The Appellate Body then ruled that the EU had not shown a scientific justi fication for its import prohibition on such kind of beef. Its report was adopted in December 1997, allowing the EU to change its import ban within a reasonable period of time, i.e. 15 months. That means that the EU will have to open its markets to beef imports from the US by March 1999.

Once again, the question of sovereignty arises. Many citizens in the EU are against this kind of meat. Many are also concerned about the long-term health effects of new veterinary discoveries, genetically altered plants and other organisms. Here again, the EU - if it believes such substances to be truly harmful to its citizens - could actually keep the embargo in place. But there is a price to pay for this. Those governments which win a case, but then end up not being able to export goods into the other country's market, may retaliate by going back to the DSB and requesting approval to increase tariffs on goods from that country. Hence, if the EU wants to keep the meat ban in place, it must be prepared to have some of its exports be subjected to higher tariffs by the country that wins the case. Thus the injured party can reclaim the revenue that is lost. Here we have the case of a country exercising its sovereignty, but going against an international judgement. The consequence is that a high price is paid and some of the country's exports are actually penalized and made less competitive in the respective export markets.

In early November 1998, the US announced it would retaliate against the EU if it fails to implement the Appellate Body recommendations concerning its import licensing regime. The US announced and published a list of mainly British and French products which would be subject to retaliation if the EU fails to comply with the panel reports by 3 March 1999. We are entering into uncharted waters, but the panel reports serve as strong recommendations to the parties in a dispute and the onus is on the governments to find a solution. The EU may yet decide that it should keep the banana regime in place.

3. Checks and Balances on the WTO

This brings me to my final point. Since I have already outlined, what governments have given up in the WTO, and what they have gained, and what rights they still maintain, I would now like to dispel the myth of power which some say lies behind a supra-national organization" like the WTO.

First, the WTO was created by governments for governments. It was not their intention to create something more powerful than the collective body of power they have.

In essence, the WTO has no power. Its power lies in the collective decision-making by its membership. That is why the WTO always refers to itself as a Member-driven Organization". The small WTO Office, which functions with no more than 230 professional staff, has essentially no say whatever. Of course, we, the Office, help governments inform themselves and we facilitate negotiations, but we can never tell a government that it must now open, for example, its financial service sector to all banks in all areas of financial activity by the 1st of January next year or in less than two months.

A related point here is that any further attempt to continue with trade liberalization has either already been agreed - as part of the Uruguay Round i.e. agriculture by the end of next year or services in 2000 - or needs a decision reached by concensus by all members. The decision made by governments in Singapore in December 1996 serves as an appropriate example. At that time, many developed countries thought it was vital that the WTO starts looking for investment and competition rules and add those to the multilateral trading system. Almost all of the developing countries disagreed. Concensus was finally reached, but the concensus was to create two working groups: one to study the inter-action between trade and competition policy; the other, to study trade and investment. Neither working group had a negotiating mandate. Neither could draft a set of multilateral rules applicable to these issues. It will be for the governments to decide by consensus what to do with these two groups in the near future or certainly by the time of the 3rd Ministerial Conference to be held in the United States at the end of next year.

This leads me to the fact that many governments, and certainly larger governments with traditional democracies, are often bound by their domestic constituencies. It is unlikely that governments would propose and offer new tariff cuts on industrialized products if there is resistance at home to increased competition from products. NGOs also play a role in the pressures they exert on their governments and the popularity they enjoy with large segments of the population. Of course, it goes without saying that these people vote for their favoured politicians and that these are the same politicians who have the final say in international trade negotiations.

4. Conclusion

I have discussed about how the WTO was created and what sacrifices in the form of concessions governments made during the course of the Uruguay Round negotiations. In this context, I explained what it means for governments to enter into international trade agreements and that it certainly does imply a loss of sovereignty in their trade policy orientations. What I tried to emphasize, however, was that what governments get back from making such concessions is indeed much more than what they give up. They actually created a binding set of rules by which they agreed to live. That paved the way for creating a trading system where a country could not simply take unilateral action against another without going through the dispute settlement process.

I have also outlined which rights governments retained in trade policy and in their domestic regulation. Standards for health, the environment, safety and security are all up to governments to decide. But they must be applied in a fair, non-discriminatory manner. Some standards may be unrealistic and deemed to be protectionist shields by other countries, but they may be kept in place - at a price, of course.

I also addressed the fact that there exist many checks and balances on governments - especially because of their domestic constituencies. These pressures are then extended as well to the WTO. The organization cannot act alone and needs its members to tell it what it can and cannot do.

If we go back to the title of my intervention - political direction through supra-national organizations, I would argue that inter-governmental organizations like the WTO definitely do provide national governments with political direction. Furthermore, they do demand that those nations which are members adhere to the organization's principles and rules. For some this
means losing some of the sovereign rights. But in the case of the WTO, I would argue that it is actually the other way around. It is the WTO's member governments which steer the WTO, a member-driven" organization. Much of the political influence which governments exercise on the WTO comes from national and sub-federal levels. Instead a change coming in the form of top-down" enforcement, it actually comes from the bottom up. Yet there is another final point I would like to raise, and that concerns concensus in the WTO. For the WTO to move forward, all members must agree. That is actually how they exercise their sovereignty. It is quite clear that when governments act alone and exercise their exclusive sovereign rights, they act in isolation and not at all in an international context. Only when governments act together they are best able to solve international problems affecting their own national interests.

Copyright ©   1999  LpB Baden-Württemberg   HOME

Kontakt / Vorschläge / Verbesserungen bitte an: