Basic text of the address for the matriculation ceremony of the post-graduate course in International Relations at the Law University of UNISA, São Paulo, Brazil, on February 29, 2000.
I thank Prof. Dr. Luis Antonio Bove, Director of the Law University of Santo Amaro and Prof. Nanci Valladares, coordinator of the International Politics Course for the kind and honorable invitation to deliver a “Magna” Lecture about ” The WTO and Global Governance”. I have divided my presentation into the following topics:
a) The signature of GATT and its historical context;
b) The experience of GATT and its rounds;
c) The Uruguay Round, the collapse of the URSS, the globalization and the creation of the WTO;
d) The WTO experience and the attempt at launching the Millenium Round;
e) The WTO is not a government, but has been used as an instrument of hegemonic trade politics; and
f) Conclusion: The WTO and the future.
The General Agreement on Tariffs and Trade (GATT) was signed in 1947 originally by 23 countries, including Brazil, and was part of the international agreements signed at the end of The Second War seeking the creation of a new world-wide order. Until then, they had never been seen, in the modern history, such hegemony of one country over the others that permitted the imposition of various systems of International Law by one state over the others. The particular conditions at the end of the conflict, where a large part of the world was destroyed, permitted the United States of America (USA) to impose a legal system of international trade, with some ideological contribution by the U.K.
The legal objective of the GATT was to establish a legal order for the international trade of goods. The objective of the USA negotiators was that this legal order benefit them in short term and that, potentially, didn’t prejudice in a significant way their economic interests, in the medium and long terms. Thus foreseeing the probability, in the near future, of the increasing competitiveness of the agricultural sector , as part of the world-wide reconstruction, the segment was excluded from the multilateral system at GATT, despite representing the most traditional economic human activity and the most important for the developing countries. This reverse represented Brazil’s first defeat in the multilateral trade system representing the only demand made by the Brazilian negotiators.
The multilateral trade system was based on the principle of the most favoured nation clause, according to which a concession to one country is automatically applicable to all countries signatory of the treaty. This fundamental principle would avoid the inequity of thus favoured trade and would promote the liberalisation of exchanges and, because of that, the general prosperity. This principle however is not absolute and presents various exceptions, including the one consecrated in article 24 of GATT, which allowed the formation of free trade zones, common markets and customs union.
However, in practice, the GATT proved itself to be a game where the results were already pre-determined and under the superficial veneer of the legality, a system was created to promote the hegemony and prosperity of few at the expenses of way. The GATT functioned on the basis of consensus, which was the means found by the USA to maintain its power of veto of over proposed amendments of the structure created by itself. All the amendments to the original rules, as well as the creation of new ones, were dependent on a system of negotiations rounds, through which representatives of the signatory countries strive for consensus on the subjects treated. The first five rounds of GATT were initiated upon the USA’s inspiration and initiative. The changes obtained were frequently the results of political and economics pressures from that country1
While all the undersigned countries were placing the GATT legal system above their national legislation, the USA was doing the contrary, in way that allowed its internal legal system to have measures that would neutralise its multilateral
commitments2. This idiosyncrasy allowed the USA to maintain internal rules which are contrary to their international commitments in GATT, as well as in the “antidumping” area. In this way, while the USA could exercise rights in terms of GATT against its trading partners, the opposite wasn’t necessarily true.
Although the USA had a legal structure and an economic situation that allowed a wasteful abuse of the international order, it is important to emphasise that, in practice, the developing countries were being kept in a situation that kept them in a superior adjoining zone of absolute misery. This happened, not because of an altruistic or fair attitude but on the contrary, as a consequence of the cold war, that put the capitalist system in conflict with the communist system. The same situation permitted, and even encouraged, the economic development of the strategic allies of the USA, so that they could join powers in their opposition of their communist rivals. The economic recovery between Japan and Europe, occurred as a consequence of this state of affairs. The less developed countries, nevertheless, remained confined to absolute misery and, because of that, they became toys in a bi-polarized world.
However, the cold war did not prevent the rules of the multilateral trade system to continue to be unfair and harmful to the other countries, including the strategic allies of the USA. As a result, in the middle of the eighties, Japan, one of the biggest victims of institutional arbitrariness of the USA in trade matters, took the lead to require a the beginning of a new round of GATT negotiations. It was the first time that a country, other than USA, took the lead to do it. On the contrary, to resist the initiative, the skilful strategists of the USA co-opted the initiative to benefit their own interests. Japan demanded better legal security in the multilateral system, to avoid the abuses which they were suffering. The USA promptly suggested that the ambit of GATT should be expanded, so as to include new areas such as services, investments and intellectual property. The USA had realised that the dynamic world economy was such that the moment had arrived to converge the interests of the developed countries so that they may explore the potential of the developing countries better. The European Economic Community3 (EEC) was in full agreement.
The question of cooperation between the developed countries to explore the less developed countries wasn’t new, not even in the practice and no more in theory. Since the middle of the 19 century, for instance, the British Empire, USA, France and Holland had actively contributed in the smuggling of heroin to China4, in a way to create a consumer product in that country that should necessarily be acquired from abroad, with the objective to eliminate the Chinese commercial balance. On that occasion, the USA made good use of the British foreign politics and came close to have around 10% of the cursed drug trade to China.5 The astute English strategists, like Benjamin Disraeli, did not fail to notice the evidence that the expansion of the British trade relations depended on lucky strike politics with the other developed countries.6
To the surprise of everyone involved, the cooperation of the big developed countries at the Uruguay Round encountered an unexpected and successful opposition by the developing countries who, for the first time, refused to accept the proposed exploiting regime. Headed by India and Brazil in the so called Group of Eleven, these countries were opposed to the inclusion of the so called new areas without their sectors of higher relative competitiveness in international trade, the agricultural and textile industries were included in the system. This immediately caused big acrimony in GATT. The relations between the developed and developing countries did not only become frigid, but also bitter. The USA, during the administration, launched a campaign to disestablish Brazil7 , which was very vulnerable during the democratic reconstruction initiated by Sarney government, seeking its exclusion from the sources of financing of the agencies of multilateral credit, as well as adopting a policy of predatory interest destined to ruin the Brazilian economy, in a trade writ unmistakably characteristic of a state of war.
While this predicament was happening, the Berlin Wall fell and the Union of Soviet Socialistic Republics (USSR), who had induced a certain frugality and sense of moderation with the USA, in their relations with the rest of the world, in general, and with the developed countries, particularly, collapsed. The change of the global geopolitical situation resulted in the interruption of resistance against USA and its allies’ intentions by the developing countries and lots of them hurried to accept the formulated requirement, without at least negotiating the balancing item inside negotiating panel of the Uruguay Round, as was the case of Brazil and Argentina. It remained up to the developing countries to fight for higher legality in the multilateral trade system and to accept the compromise of effective inclusion of the agricultural and textile areas after a period without encumbrances. At the end of the round, the proper World-wide Bank and the Organisation for Economic Cooperation and Development (OECD) pointed out that the developing countries were the losers of the negotiation round.
With the signing of the Uruguay Round treats, in 1994, the World Trade Organisation (WTO) was created, that started to take effect from 1995, coexisting with the GATT8 treaty. On that occasion, it was boasted that a new era of global prosperity has been initiated. In the entire developing world, including Brazil and India, there were indications from important political leaders to the effect that a lot of hope was placed on the new multilateral trade order. The final phase of the Uruguay Round negotiations was characterised by a great omission by the developing countries which permitted to the major powers to adapt the system to suit their own interests, cultures and idiosyncratic preferences. This also occurred in the dispute resolution system, in which they put all hopes for an end to the arbitrary and unfair multilateral trade system. After the system control was guaranteed, it was used in the sense of extracting national or sectarian advantages, to the prejudice of the collective interest.
In fact, in the five years which followed the foundation of the WTO, in 1995, the global prosperity has been, more than ever, concentrated in developed countries, specifically the United States and European Union (EU). Presently, the developing countries were victims of an enormous crisis of international financial volatility; diminution in exports; drastic reduction in their agricultural goods and other basic product prices; economic crisis; and generalised despair. According to WTO numbers, Asia and Latin America had performed worse in the trade of goods during the four years that followed 1995 than during the previous period9. The price of agricultural goods fell consistently during this period, by 30% AFTER 199810 ALONE. According WTO, Africa and Latin America depends on 19% and 36%of their agriculture sectors for their exports.11
The economic crises were followed by social and political instability in many parts of the world. In Russia bartering became the major means of trade. In Africa the situation is still dramatic and even very successful experiences, such as South Africa, lost the support of improved access of its products to international markets. The institutional situation of Latin America is grave, with movements of armed insurgency in Mexico, Peru, Colombia, Equador, and, to a certain degree, even Brazil. Mercosul, a meritorious initiative, is sinking from commercial point of view, relegated to a sad situation of managing trade, in view of the enormous internal institutional crisis of the its major components, Argentina and Brazil. The crisis even affected developed economies, such as Japan. Also in Asia, the Philippines, Thailand, Indonesia and Malaysia, had dramatic economic problems. India, the most populous nation in the 135 members of the WTO, does not have any remarkable benefit as a result of the multilateral system of trade anymore.
Therefore, from the perspective of the developing countries, the WTO experience was not positive. In fact the modest concessions that were given in the textile and agriculture areas, during the Uruguay Round, were not enough to guarantee their natural competitiveness, as they were carefully made to maintain the advantages of the developed countries. The inclusion of new areas in the multilateral trade system permitted the developed countries to have access to the developing markets, but it did not permit the same access to the markets of those countries, which are closed by horizontal measures. The treaty about Investments Measures related to trade (TRIMS) cease to examine the scandalous complicity of the developed countries out of concern for fiscal frauds and capital flight in developing countries. The Antidumping Treaty, lousy and cowardly, allowed the U.S.A. to maintain in its malicious domestic legislation equity and the basic principles of international Law.
Meanwhile, the Treaty of Intellectual Property Rights related to Trade (TRIPS) subordinated the national authorities of the developing countries to the authorities of developed countries according to the concept of “pipeline” protection. The Treaty about the Rules of Origin permits the institutionalised protectionism in areas of free trade and its use to deviate the traditional flow of trade. As in the case of the North America Free Trade Agreement (NAFTA), it resulted in the increase of the commercial dependence of Mexico on the United States and a devastating effect on the Caribbean. The Agreement of Subsidies is neither just or nor equitable to developing countries, putting India, South Africa and Brazil on the same level as countries such as France and Switzerland. Increasingly, attitudes which are very damaging to developing countries such as financial and technological dumping, largely used to guarantee control of the market, were not examined. 12
Even the dispute resolution system, which harboured so much hope, was frustrating in the years of WTO’s functioning. Many of the problems derive from the lack of suitable rules of procedure, which jeopardises the legality of the system.13 The system is imperfect within the scope of proper legal terminology and, within its scope it tragically omits of certain basic legal institutions such as reconvention and joinder of parties. The first institutional omission implies that an arbitration panel for the original request is constituted, and another for the reconvention, with different arbitrators, even if the parties are the same and the object is connected, such as in the recent aeronautic issue between Brazil and Canada. This situation implies the tangible possibility that the decisions of two, three or four panels may be diverse as to the same legal issue.
Another failure in the system comes the impossibility of the preliminary allegations, such as the issue of the conflicts between treaties, which became relevant in arbitration panels which decided recent cases of concern to Brazil and India. In the same way, the dispute resolution system of the WTO offends for its lack of transparency. Its legal division defines the terms of reference, or litigious object, and provides a mandatory advisory group to the panels as well as to the appeal level, since neither has its own managing structure. The juridical division of the secretariat of the WTO has a greatly ethnocentric composition, controlled by the major national powers. The WTO in an apparent violation of the most basic principles of governance, including those recommended by OECD, has been refusing, in writing, to provide the nationality of the members of its legal division, which seriously impairs its credibility and its services.
This number of wrongs, imperfections and distortions make WTO’s system of dispute resolution suffer many extravagances and strange peculiarities, some of which I had the opportunity to list in my most recent book. To them we can now add the decision of the panel in the case of USA versus Australia14 concerning the banks of leather, where it was decided to convict a private company, outside the WTO’s competence, to return subsidies. Its tragicomic character would have been lighter if this system has not been decided, in the great majority of the cases, against developing countries, when they were in dispute with developed countries.
From 31 decided cases an appeal at the WTO15, 18 were important to disputes between developing countries and developed ones. Of those, 13 were won by developed countries, more than two thirds, and just four by developing countries, and two of them were refused to be implemented. Brazil was the champion of defeats, losing a suit in four panels which were directly involved with developed countries, followed by India with three defeats and no victory; Korea with two defeats and one victory; Argentine with two defeats and no victory. All in all, some of those defeats represent attempts to change the treaties to damage the legal order and the interests of developing countries16
All these imperfections and omissions, over the economic crisis supported by the majority of world inhabitants, were not enough to correct the direction which the WTO was taking in the mechanism of revision that has already been predicted in treaties of the Uruguay round. The EU and USA intended, through the placement of a new round of negotiations of the multilateral system, that is supposed to be called the ‘Clinton round’ or millennium round. In this new round, the object was the increase of advantages for developed countries. This extravagant designation implied a loss of credibility of the WTO in international public opinion, which is constituted, in the great majority, by unemployed, miserable people, excluded of affluence artificially induced in a few countries.
The Chancellor of Argentina, Mr. Adalberto Rodrigues Giavirini, summed up the position of all the developing countries very well in recent declarations: “We made a great effort to reach globalisation. We had a series of sacrifices with privatisation, economic opening up which did not result in what was said that it would result. Our unemployment is high, our exclusion of commerce is very strong, our growth rate decreased sharply due to the agricultural subsidies of the developed countries.” 17
Inside this sad frame, it is very important that the WTO must not be the world-wide government according to the treaties of regency. Recently, the WTO general-director, Mr. Mike Moore, with credibility affected negatively by the process of his election and his positions in the ambit of the installation of what would be the Millennium Round, declared that “the WTO is not supra-national government and it does not have the intention to become one18. “Notwithstanding such a declaration, it resulted that the main powers searching to use the WTO as a channel of the globalised application of its standards, criteria, rules and worth, to ensure its greater commercial competitiveness. These criteria are evidently subjective, self-seeking and, frequently, hegemonic. These countries equally search a mechanism of penalty, with a certain legality, even attractive and, sometimes bizarre, to impose its will on third parties.
Since the United States does not want to give up the power of veto, it can not be conceive the change of the consensual decision making system that implies unanimity, as we had seen at the beginning of the presentation. Now, in this manner it is gradually searching, as far as is possible, up to a certain point, to gradually dislocate the power of ordering matters to the dispute resolution system, which is controlled by the developing countries and with the transparency of the Tietê River. However, this is a question that depends on a new treaty19
Lastly, we cannot forget that the WTO, as well as GATT, must be used to promote the general prosperity of all people, and not of a few ones only. It is with this objective where the value of its concept and its potential of benefits lie. The system must permit and promote the distribution of world-wide prosperity, without which it will not be more than an efficient substitute for an embrasure.