An ABC of the ailing World Trade Organization

18 February by CADTM


The IMF and the World Bank were not the only institutions to emerge to consolidate the world’s economy after World War II. Discussions between Allies, mainly the United States and Great Britain, concluded with the notion of an international trade organization charged with drawing up the rules of world trade.

Thus the Havana Charter establishing an International Trade Organization (ITO) was signed in March 1948 by 23 countries. However as the United States Congress did not ratify it, [1] all that remained were the non tariff agreements signed in 1947 in preparation for the ITO, and which became effective on 1 January 1948. Initially intended to be temporary, they had a limited institutional framework; finally, they were the basis of the mechanism established under the name of the General Agreement on Tariffs and Trade (GATT) which lasted for nearly half a century.

 Free trade or the fox in the henhouse

Over nearly 50 years, the GATT organized 8 rounds of negotiations aimed at ever-increasing liberalization of trade. The last one, known as the Uruguay Round (1986-1994), gave rise to the creation of the World Trade Organization in April 1994 at the Marrakech summit. The adoption of the final act [2] of this round was a milestone as it opened up the area of negotiations to sectors not yet covered by the GATT (agriculture, textile, services, etc.) and included for the first time the question of intellectual property rights in the context of international trade. The WTO WTO
World Trade Organisation
The WTO, founded on 1st January 1995, replaced the General Agreement on Trade and Tariffs (GATT). The main innovation is that the WTO enjoys the status of an international organization. Its role is to ensure that no member States adopt any kind of protectionism whatsoever, in order to accelerate the liberalization global trading and to facilitate the strategies of the multinationals. It has an international court (the Dispute Settlement Body) which judges any alleged violations of its founding text drawn up in Marrakesh.

was charged with articulating broader negotiations and promoting the liberalization of trade with renewed energy. The WTO now counts 164 member countries and has been presided by the Brazilian Roberto Azevedo since 2013.

Free trade, the WTO’s unrelenting objective, is in fact the strategy adopted by the dominant economies to enable them to remain the powerful economic actors they have become. Once they have the upper hand, it is in their interests to declare “now, let market forces come into play”. For the WTO, liberalization means obliging countries of the South to abandon any form of protection of their economies and open them up to the voracious appetites of transnational corporations.

“Any nation which by means of protective duties and restrictions on navigation has raised her manufacturing power and her navigation to such a degree of development that no other nation can sustain free competition with her, can do nothing wiser than to throw away these ladders of her greatness, to preach to other nations the benefits of free trade, and to declare in penitent tones that she has hitherto wandered in the paths of error, and has now for the first time succeeded in discovering the truth.”

Friedrich List, The National System of Political Economy [1841], translated by Sampson S. Lloyd, Longmans, Green & C°, 1909, pp. 295-6.

 The IMF-World Bank-WTO trio

Alongside the IMF IMF
International Monetary Fund
Along with the World Bank, the IMF was founded on the day the Bretton Woods Agreements were signed. Its first mission was to support the new system of standard exchange rates.

When the Bretton Wood fixed rates system came to an end in 1971, the main function of the IMF became that of being both policeman and fireman for global capital: it acts as policeman when it enforces its Structural Adjustment Policies and as fireman when it steps in to help out governments in risk of defaulting on debt repayments.

As for the World Bank, a weighted voting system operates: depending on the amount paid as contribution by each member state. 85% of the votes is required to modify the IMF Charter (which means that the USA with 17,68% % of the votes has a de facto veto on any change).

The institution is dominated by five countries: the United States (16,74%), Japan (6,23%), Germany (5,81%), France (4,29%) and the UK (4,29%).
The other 183 member countries are divided into groups led by one country. The most important one (6,57% of the votes) is led by Belgium. The least important group of countries (1,55% of the votes) is led by Gabon and brings together African countries.

http://imf.org
-World Bank World Bank
WB
The World Bank was founded as part of the new international monetary system set up at Bretton Woods in 1944. Its capital is provided by member states’ contributions and loans on the international money markets. It financed public and private projects in Third World and East European countries.

It consists of several closely associated institutions, among which :

1. The International Bank for Reconstruction and Development (IBRD, 189 members in 2017), which provides loans in productive sectors such as farming or energy ;

2. The International Development Association (IDA, 159 members in 1997), which provides less advanced countries with long-term loans (35-40 years) at very low interest (1%) ;

3. The International Finance Corporation (IFC), which provides both loan and equity finance for business ventures in developing countries.

As Third World Debt gets worse, the World Bank (along with the IMF) tends to adopt a macro-economic perspective. For instance, it enforces adjustment policies that are intended to balance heavily indebted countries’ payments. The World Bank advises those countries that have to undergo the IMF’s therapy on such matters as how to reduce budget deficits, round up savings, enduce foreign investors to settle within their borders, or free prices and exchange rates.

couple, the WTO completes the powerful war machine whose aim is to prevent countries of the South from protecting vital sectors of their economies from voracious transnational appetites. To illustrate this, we have Article III, paragraph 5 of the Marrakesh agreement establishing the WTO: “With a view to achieving greater coherence in global economic policy-making, the WTO shall cooperate, as appropriate, with the International Monetary Fund and with the International Bank for Reconstruction and Development and its affiliated agencies.” Moreover, those two institutions enjoy observer status within the WTO. The WTO is equipped with its own settlement tribunal for handling disputes between States, the Dispute Settlement Body, enabling it to impose its own rules in defiance of the sovereignty of peoples.

Thus the World Bank and the IMF impose very strict neoliberal conditionalities which force indebted economies to open themselves up even wider to the global market. That market is dominated by highly industrialized countries and transnational corporations, most of which have their headquarters in those rich countries. The hierarchical way in which the connection of the economies of countries of the South to the global market has been enforced is damaging to their local producers, their domestic markets and to any possibility of strengthening South-South relations.

Contrary to the claims of neoliberal dogma, greater openness and stronger connections to the global market constitute an obstacle to the development for countries of the South. Total integration of a country of the South into the global market generates structural deficit of the trade balance Trade balance The trade balance of a country is the difference between merchandize sold (exports) and merchandize bought (imports). The resulting trade balance either shows a deficit or is in credit. as imports grow faster than exports. That deficit tends to be funded by foreign loans. [3] Most countries in the South have thus come full circle on the vicious roundabout of indebtedness and dependence.

Furthermore, the WTO’s nuisance value stretches far beyond the domain of trade. The WTO is a key element of the mechanism set up by the proponents of neoliberal globalization to make it even stronger. The policies recommended by the World Bank-IMF-WTO trio are perfectly consistent and follow a detailed agenda with many facets (political, economic, financial, geostrategic…), that social movements must fight relentlessly.

 An ailing WTO

The WTO is ailing. Donald Trump’s administration has been applying an aggressive unilateral trade policy towards China and the European Union as well as towards other economic powers. In 2019 Washington prevented judges from being designated to the WTO’s Appeal Court which meant it was unable to function. [4] The Doha Round of negotiations launched in 2001 have been struggling to deliver results for years, undermined, among other things, by disagreements around China, which joined the WTO in 2001. Yet paradoxically, for almost twenty years liberalization has been carrying on despite the absence of any new agreement in the WTO. Bilateral, regional and plurilateral free trade agreements have been replacing multilateral agreements, extending the borders of free trade to places that the WTO has not yet reached. Nevertheless, the policies of the Trump administration have certainly created chaos and it is hard to see where this will lead.

The WTO needs to be abolished and replaced by a new multilateral global organization. The aim of such an organization, in the realm of trade, should be to guarantee the drawing up of a series of fundamental international pacts, beginning with the Universal Declaration of Human Rights and all the fundamental treaties on human rights, individual or collective, and environmental rights. Its function would be to oversee and regulate trade to ensure that it conforms rigorously to environmental and social norms (in particular the conventions of the International Labour Organization - ILO). This definition is in frontal opposition to the present objectives of the WTO. Obviously it implies a strict separation of powers. It is out of the question that a multilateral organization should contain its own internal tribunal, as is the case of the existing WTO. Thus the Dispute Settlement Body must be abolished.


Translated from the French by Vicki Briault Manus and Christine Pagnoulle (CADTM)



Footnotes

[1See Susan George, “Alternative finances: The World Trade Organisation we could have had”, Le Monde diplomatique, 24 January 2007 https://www.tni.org/en/article/alternative-finances-the-world-trade-organisation-we-could-have-had.

[2This final act consists of some 20,000 pages of texts. See https://www.wto.org/english/docs_e/legal_e/03-fa_e.htm

[3The example of China does not contradict this argument. China’s insertion in the global market is quite peculiar as it maintains very significant areas of protection and its domestic market is considerable.

Translation(s)

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