Assignment on World Trade Organisation

 The World Trade Organization (WTO) is essentially a body that liberalises and regulates international trade. It has commercial links with 153 member countries and roughly 30 observers pursuing membership, accounting for around 98 percent of global commerce. It is currently a major organisation for economic governance and serves as the foundation for trade liberalisation. The World Trade Organization is headquartered in Geneva. The forerunner of the World Trade Organization (WTO) is the General Agreement on Tariffs and Trade (GATT). Both of these organisations aim to reduce tariffs and remove impediments to proper trade behaviour for and between member countries. The WTO not only paves the way for smooth trade practises, but it also assists by performing other critical functions such as dispute resolution, which aims to enforce participants' adherence to WTO agreements, creating a proper forum for negotiating and formalising trade agreements, being vigilant by monitoring member states' trade policies, providing technical assistance and training to developing and underdeveloped economies, and cooperating in the best way possible. From the responsibilities listed above, it is evident that the WTO plays a significant role in global commerce. The WTO contributes to the creation of a peaceful environment between states through the control of smooth trade flows and effective dispute settlement when necessary. Its prompt response leads to even better international cooperation and confidence, which the WTO encourages. The fact that the WTO system is based on rules rather than power makes things much easier for all member countries to deal with. The WTO reduces inequities by providing emerging and underdeveloped countries a voice. Through this channelization of trade practices at the end of the day the consumers in the world market get more choice and broader range of qualities and products to choose from. By this effort of reducing the trade barrier the WTO is instrumental in promoting more trade by way of exports and imports thus earning countries foreign exchange thereby increasing the country’s income. The WTO system shields the government from unnecessary lobbing wherein the governments can defend their positions by focusing on tradeoffs that are made keeping in mind the interest of everyone in the economy rather than narrow interest groups. The policies of WTO help in promotion of better governance and helps in curbing corruption practices.

Despite the fact that the WTO has always sought to maintain the above, the big players, or more specifically, the developed nations, have time and again implemented policies that solely benefit them by increasing and growing their own market share with absolute contempt for the other nations. The United States' dominance in the World Trade Organization resembles a U.S. domination rather than responsible leadership. It has frequently been observed that, rather than supporting desirable goals for everybody, it has been more concerned with aggressively extending its own markets. These developed countries usually are equipped with better resources, technical expertise and have usually have much more stable markets, so some of the policies coined by them usually only works for them as the economic position of the developing countries or least developed countries does not allow them to make use of these policies. Ironically, it is these developing countries that constitute the majority three-fourths of WTO membership and, in theory, have the ability to influence the agenda and outcome of trade negotiations. Unfortunately, they have never used this to their advantage, but this is because these developing countries are typically dependent on developed nations such as the United States and Japan for imports, exports, security, aid, and so on, and any objection or disagreement by these developing countries towards the policies proposed by the developed nations in the WTO could harm or might threaten the overall well-being and security of dissenting developing nations.

In her article on the relationship between the WTO and developing countries, Aileen Kwa argues that the WTO and its institutional arrangements are designed to primarily advance the interests of developed nations. Though one would not like to agree with the views of Aileen Kwa as the vision and purpose of WTO coming into force is mainly to facilitate smooth trade practices and to remove the barriers in trade for not only developed nations but for all, but sadly so the framework of the WTO is such that in practice the benefits are usually enjoyed by the developed countries this is because of many lacunas such as the developed countries play a dominating role in the WTO as usually the developing countries are not  economically sound and are usually dependent on these developed nations for security, trade ,aids etc so dissenting to proposed policies by these major players could harm the relationship between these countries there by creating an insecurity in the decision making  process. Trade negotiations are based on the principle of reciprocity or "trade-offs." That is, one nation makes a concession in one area, such as lowering tariffs on a certain commodity, in exchange for another country agreeing to a specific agreement. Larger economies profit from this sort of trading because they may obtain more by giving more. Negotiations and trade-offs take occur mostly between industrialised nations and some of the wealthier or bigger emerging countries, while backward economies remain stagnant. Though, in my opinion, this is where the WTO should step in and facilitate a trade arrangement in which two or more low economically backward countries could make a barter arrangement with the developed nation, thereby not only facilitating trade but also elevating the position of the backward or developing economies, which are otherwise left stagnant. One of the highlighting features of WTO which makes it much more powerful is its dispute settlement system. Countries that do not abide by its trade rules are taken to court and can eventually face retaliation but the developing countries usually cannot make use of this as legal recourse in dispute settlement as it is highly expensive and usually requires a high level of legal expertise which they might not posses not only that the basis on which the system is run-whether a country is violating free trade rules which is not the most appropriate for their development needs and so it is usually avoided. The major factor being the developing economies are usually handicapped when it comes to human and technical resources this creates a problem when there are 40-50 meeting held in Geneva every week so usually they are not as well prepared as their developed country counterparts.[1]

If one would observe the various conferences and conventions taken place under the aegis of WTO over the years, it would divulge out of that there has been a constant struggle between the developed nations and the third world countries.

It is an undeniable reality that there is not only a significant economic disparity between rich and developing countries, but also a huge technical divide between developed and developing countries. This necessarily implies that there is no equal playing field among states in the world. The International Trade Organization, through its General Agreement on Trade and Tariffs, has advocated globalisation and liberalisation of the world economy in order to allow for free trade discussions. To understand whether the statements of Aileen Kwa are correct or not, it is necessary to look into the policies of developed nations such as United States of America and the way in which they have circumvented the WTO policies and in brief an analysis of a few US policies has been submitted as follows:

The United States of America has very smartly regulated its textile market in such a way that it is very difficult for the developing countries to compete in the American markets or with their American counterparts.

Even the tariff escalation is meant to make life difficult for the developing countries. In the context of textile industry, Rules of origin have also been made in such a way by USA, so as to restrict low cost textile products from the third world countries entering into the US markets.

The US influenced agricultural policies are against the interests the third world countries and the repeated failures of the Doha declarations just reinforces the belief that the WTO agricultural policies are full of inequities and as such it is very difficult to disagree with the views of Aileen Kwa.

Similarly, the agreement on the intellectual property rights which is also known as TRIPS has stipulations which tilt the balance in favour the developed in the favour of developed nations and makes technology transfer much more difficult. Genetically modified seeds and plants increase the costs of farming and it becomes very difficult for farmers from developing countries to compete with their counterparts from the developed countries. The recent furore over the genetically modified seeds of BT Brinjal is just a testimony to the fact.

Another disadvantage of this agreement is that shared information of indigenous countries can be protected by other countries. The shining example of this is the dispute pertaining to the protection attempted by the United States of America over Basmati rice, turmeric etc.

The aforementioned were just some of the misuse of the WTO policies by the developed nations. The reasons why the WTO Policies have failed to be effective in reducing poverty and in bridging the gap between the developed and developing nations have been submitted as follows:

Free access to companies of countries into each other’s markets would result in catastrophic situation for the economically weaker countries and their companies because their products would be no match for their technologically robust counterparts and would result in closure of industries in the developing countries thereby further increasing poverty, unemployment and misery in the developing countries at the same time aiding the developed countries in making money out of the misery of the developing countries and the least developed countries.

Strong terms and conditions as per the TRIPS agreement further make it very difficult for the developing and least developed countries to gain access to new technology without which there can be no economic development anywhere in the world. Free access to the markets of third world countries would necessarily result in hesitation on part of the developed countries in transfer of technology to the third world countries because once the transfer of technology takes place, dependence of the developing countries and the least developed countries upon the developed countries would reduce considerably and no developed country would want that.

As Aileen Kwa rightly stated:

“Washington also intends to conclude an initial agreement on transparency in government procurement by the Third Ministerial Conference. Such an agreement will eventually bring about the full-scale opening of government procurement-a trillion dollar business-to foreign companies. Like the investment agreement, this will be detrimental for developing countries, whose enterprises will not be ready for such intense competition.”

Even though protectionism or keeping the domestic markets closed does not result in economic development as we have observed that in case the Great “Iron Wall” of USSR. However, cautious opening of the market or conditional opening of the markets can help the developing nations in accessing and gaining new technology which would further enhance the prospects of that economy developing in future. An illustration in this regard is submitted as follows:

If a developed country’s company seeks to sell air conditioners in a developing country then the permission can be granted subject to the clause of technology transfer, i.e. the company must agree to transfer or disclose the technology in regard to making air conditioners. In this way, in future, companies of the developing country will also gain the technology and can compete with other companies and thus the same would help in economic development of the developing country.

Thus a perusal of the submissions made above would disclose that the WTO policies in vogue are full of inequities and that the interests of the developing nations have often been compromised with. However, the purpose with which the WTO was formed is different and certain changes in the WTO policies which would help in removing these inequities and result in reducing the economic and technological divide the world over, are submitted as follows.

The first and foremost requirement is to ensure a much relaxed way for transfer of technology among nations as technology and information are the key drivers of development the world over. Liberalisation must take place at a gradual pace so that the developing country can put its infrastructure machinery in place to meet the global challenges.

Decision making needs to be democratic and equality in status must be granted to all the countries irrespective of their economic might.

In cases of dispute resolution, a more humane approach must be adopted by the tribunals and appellate bodies so that unfortunate decisions such as the dispute pertaining to banana trade can be avoided.

Amendment to TRIPS must be made in such a way so as to remove the hurdles in regard to health care and plants and agricultural species so as to ensure that basic needs of humanity can be met with.

In pursuance of the free trade mechanism, even the developed nations must open their markets completely as they do not need to protect the interests of their producers and companies thereby creating a level playing field for all the countries.

Tariff escalation must be discouraged so as to enable the developing countries in competing with the developed countries.

As Aileen Kwa rightly submits;

“If developed and developing country farmers are to compete in the same markets, then the $280 billion in annual subsidies that developed countries provide to their farmers should be reduced to the negligible amounts developing countries provide. Otherwise, developing countries should be allowed to increase both their subsidies and their tariffs to protect their markets from the highly subsidized exports of the developed countries. Small farms in both developed and developing countries should be encouraged, not squeezed out-especially in developing countries, where farming is the source of livelihood for millions.”[2]

The WTO Policies should be made in consonance with the policies of UNO aimed at reducing economic inequalities because then only can WTO aid in realizing the noble objective of the United Nations Organisation and its sister organizations.

In conclusion, I would like to submit that I agree with Aileen Kwa’s statement partially to the extent that WTO’s policies need to be revisited and amended so as reduce the tilt of balance in favour of the developed nations and to ensure that the interests of the developing countries and the least developed countries are safeguarded and promoted then only the WTO will be said to achieving its true objectives. 

 

To understand the scope of the article in the realms of environmental protection, it is pertinent to discuss what the article basically states and accordingly Article XX of the GATT agreement is submitted as under:

“Article XX

General exceptions

“Subject to the requirement that such measures are not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between countries where the same conditions prevail, or a disguised restriction on international trade, nothing in this Agreement shall be construed to prevent the adoption or enforcement by any contracting party of measures:

...

(b)     necessary to protect human, animal or plant life or health;

...

(d)  necessary to secure compliance with laws or regulations which are not inconsistent with the provisions of this Agreement, including ...;

...

(g)     relating to the conservation of exhaustible natural resources if such measures are made effective in conjunction with restrictions on domestic production or consumption; ... .”[3] 

A bare perusal of the article submitted above discloses that the language of the article has given quite a wide scope for the purpose of environmental protection.

Article XX of GATT provides for certain general exceptions on a number of specific instances in which the WTO members can be exempted from GATT rules in and the circumstances in which the same can be done have been laid down. Two important exceptions which are of extreme importance with respect to the environment: they are paragraphs (b) and (g) of Article XX. According to these paragraphs, WTO members can adopt policy measures, which are inconsistent with GATT disciplines, but they are important to protect human, animal or plant life or health, or pertaining to the conservation of exhaustible natural resources.

To understand the scope of the particular article and its role, discussion of a few cases is incumbent. In this exercise the scope of this article is being attempted to develop a better understanding of the article. As has been rightly provided been rightly provided for by the [International Centre for Trade & Sustainable Development] in regard to the landmark case of Shrimp Turtle;

The WTO Shrimp-Turtle dispute is one of the most critical environment-related cases which have come before the WTO trade body panel which decides such cases. The dispute pertains to a 1989 US legislation (Section 609 of the Endangered Species Act) which requires the US government to certify that all shrimp imported to the country are caught with proper methods (such as use of “turtle excluder devices,” or TEDs, which reduce the number of turtles caught in shrimp nets by around 90%) which protect sea turtles from incidental drowning in shrimp trawling nets. The American imposed trade embargo which was expanded in May 1996 to cover within its purview all shrimp-exporting countries, thereby affecting around 40 countries such as India, Thailand, Pakistan etc. Accordingly countries like India, Pakistan, Malaysia, and Thailand lodged complaints with the WTO in early 1997, claiming that Section 609 stood in violation of a number of WTO rules. On April 6, 1998, a dispute settlement panel ruled against the shrimp embargo, arguing that it represented the kind of unilateral measure that ‘insofar as [it] could jeopardise the multilateral trading system, could not be covered by Article XX.’ GATT Article XX allows WTO-inconsistent measures to be taken for environmental and health reasons.[4]

The case submitted above was of high significance for a variety of reasons. The provisions of Article xx (g) and the phrase “exhaustible resources” has been interpreted in a broad manner so as to include within its purview not only mineral or non living resources but living beings as well including endangered species such as turtle. In this case the cause of concern was the risk of extinction of sea turtles on account shrimp fishing as there is very high possibility of turtles being caught as by- catch while fishing. Supporting this interpretation, the Appellate Body observed, in this case, that modern international conventions and declarations made frequent references to natural resources and this included both living and non living resources. Further, in order to shed some light on the exhaustible character of sea turtles, the Appellate Body noted that sea turtles were included in Appendix 1 on species threatened with extinction of the Convention on International Trade in Endangered Species of Wild Fauna and Flora (“CITES”).[5] 

Further, in this case, the Appellate Body gave a wide scope to the United States policy on the by including it within the purview of Article XX(g) and directed for its implementation not only to turtles within the United states of America’s waters but even beyond them as there was a sufficient nexus between the endangered marine species involved and the United states’ policy for the purpose of Article XX(g).

A perusal of the facts submitted above that the WTO panel and appellate bodies have given a very wide application to the US policy and justified its expansion to 40 countries in order to protect environment and ecological standards. In this regard it is submitted that WTO has also promoted the use of turtle extruder device (TED) which allows the shrimp to pass to the back of the net and allowing the turtle to escape from the net thereby decreasing the chances of turtle getting caught while shrimp hunting by around 90 %.

In this regard another important case is being submitted as follows:

The dispute in this case pertain primarily about death of dolphins in eastern tropical areas of the Pacific Ocean, where while harvesting yellowfin tuna, the dolphins used to get trapped and killed as a because the yellow fin tuna swim beneath the school of dolphins.

A disagreement emerged over the application of domestic legislation to another nation. The United States Marine Mammal Protection Act establishes some dolphin protection rules for the domestic American fishing fleet as well as nations whose fishing vessels harvest yellowfin tuna in that section of the Pacific Ocean. According to the Act, if a nation exporting tuna to the US fails to demonstrate to US authorities that it fulfils the dolphin protection criteria established by US legislation, the US government must impose an embargo on all imports of the fish from that country. In this particular dispute, Mexico was the country exporting tuna to United States of America. United States of America banned exports of tuna from Mexico to itself. Mexico lodged complaint in 1991 under the old GATT dispute settlement procedure.

The embargo in compliance of the aforementioned Act also applied to “intermediary” countries handling the tuna en route from Mexico to the United States as the processing of the tuna took place in other countries as well and the countries at the receiving end in this case were Costa Rica, Italy, Japan, Spain, Netherlands Antilles, and the United Kingdom. Various other countries such as Canada Columbia and members of the Association of Southeast Asian Nations were also named as “intermediaries”.[6] 

Mexico along with a number of intermediary countries named by USA asked for a panel which submitted a report to GATT members in the month of September 1991 concluding that:

The United States of America could not impose an embargo on Mexican tuna imports because Mexican tuna production laws did not meet American standards. However, the United States was allowed to impose its own standards on the quality and content of the imported tuna and can prohibit importation if Mexico degraded the quality or content of the tuna. This became known as the product versus process problem.

Further the panel concluded that GATT rules did not allow one country to take trade action while attempting to enforce its own domestic laws on another country — even in order to protect animal health or exhaustible natural resources. The term used here in the report of the panel was "extra-territoriality".

In this regard it is submitted that in this case the scope of Article XX (g) appears to be quite limited. The reason behind such a limited interpretation to the aforementioned article appears to be otherwise, the nations would have used this provision to escape the requirement of allowing free trade access and could have banned export of any goods from any country just by taking the plea that the process used in that country was in violation of some domestic legislation or provision. In this case, it can be said that an attempt to balance the trade interests of the member countries was made by the WTO panel.

Another important case in this regard is the Brazil’s ban on retreaded tyres and in that regard, the following is submitted;

Various issues in question in this case pertained to Brazil’s ban on import prohibiting, marketing, transportation or warehousing of retreaded tyres in Brazil. Other issues pertaining to this case were Brazilian municipal laws placing restriction on the marketing of imported retreaded tyres. The most vital issue was the issue of exemption of retreaded tyres imported from Mercosur countries from the import ban and fines, this exemption is also known as (“MERCOSUR Exemption).

The finding with respect the context in question is submitted as follows:

“GATT Art. XX(b) (exceptions): The Appellate Body upheld the Panel's finding that the Import Ban was provisionally justified as "necessary" within the meaning of Art. XX(b). The Panel "weighed and balanced" the contribution of the Import Ban to its stated objective against its trade restrictiveness, taking into account the importance of the underlying interests or values. The Panel correctly held that none of the less trade-restrictive alternatives suggested by the European Communities constituted "reasonably available" alternatives to the Import Ban.”[7]

• The "chapeau" of GATT Art. XX: The Appellate Body reversed the Panel's findings with respect to MERCOSUR exemption that the imports of used tyres would not result in the Import ban being used in a manner that constituted “arbitrary discrimination” and that it would lead to unjustifiable discrimination and disguised restriction on international trade only to the extent that they result in import volumes that would undermine the achievement of objective of the ban. The Appellate Body rightly observed and held that the assessment of whether discrimination is arbitrary or unjustifiable must be made in the light of the objectives of the measure, and found that the MERCOSUR exemption, as well as the imports of used tyres under court injunctions, had the effect of the import ban being applied in such a manner so as to facilitate arbitrary or unjustifiable discrimination and a disguised restriction on international trade and rightly held that this action of Brazil was within the meaning of Chapeau of the Article XX.[8]

In this regard, it is submitted that even though the Appellate body of WTO held that the import ban by Brazil was not justified under Article XX of the GATT , it was because of the discriminatory approach adopted by Brazil and its action of banning the import of retreaded tyres citing protection of humans, animals, living and non living resources and at the same time granting exemptions to the Mercosur countries thus granting arbitrary and discriminatory advantage to certain countries over other member countries which is not allowed under the WTO regime. However, what is pertinent to note here is that prima facie, the action of placing an import ban was legal and justified under Article XX of the GATT (WTO) agreement and the same would have been definitely upheld in case Brazil would not have made provisions for the discriminatory exemption created in favour of the Mercosur countries.[9]

It is submitted in this context, that the judgement in the aforementioned case is an amazing case law with regard to the WTO and its responsibilities of balancing the free flow of international trade and commerce and the same time making and encouraging attempts to protect, promote and preserve the fragile environment and the ecological condition of mother Earth and various endangered species residing on her.

It is submitted that the WTO does not have any specific provision pertaining environment protection or protection of endangered species in its policies or in the agreement, i.e. the GATT agreement. However, the provisions of Article XX of the agreement have been used in a very effective manner by the WTO panel/ Appellate Bodies to protect and promote environmental issues. In this regard, it is submitted that US Shrimp case divulged that how WTO Panel increased the scope of applicability of the policy meant for the protection of sea turtles in the American waters to include within its purview around 40 countries. This case was a welcome step and the landmark case undertaken by the WTO in protection of endangered species.

In the next case, i.e. dolphin tuna case, we saw a slightly difficult judgement when observed from the point of view of protecting and preserving living resources or in the context of Article XX of the GATT agreement. However the judgement was critical to maintaining the principle objective of the WTO, i.e. to ensure and promote free flow of trade and discourse of commerce between member states and any other order would have ended up being perilous to the interests of the WTO’s principle objective.

In the final case, i.e. Brazil retreaded tyres case, we observed a much more balanced and equitable judgement was observed in this case. The highlight of the case was that even though the Appellate Body recognised that the import ban on retreaded tyres was a justified one within the realms of Article XX of the GATT agreement, the same was vitiated on account of the exemption from this import ban in favour of Mercosur countries and thus contrary to the WTO goal of non discrimination, accordingly the ban was considered to be outside the purview of Article XX of the GATT agreement.

It is submitted that while adjudicating over a dispute pertaining to Article XX of the GATT agreement, the scope of the same is quite wide but subject to the principal consideration and goal of the World Trade Organisation to protect, promote and preserve the free flow of trade and commerce among the member countries. However, it can be safely stated that Article XX of the GATT agreement has played limited but quite a significant role in protecting and promoting environmental interests.