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Last Updated: September 2005
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Canada's Voice in Global Governance: A Civil Society Handbook World Trade Organization (WTO) |
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Since its creation in 1995, no other organization has provoked as much controversy as the World Trade Organization (WTO), the successor to the General Agreement on Tariffs and Trade (GATT). Its proponents say it is an engine of global economic growth. Its detractors argue that it is a profoundly undemocratic institution that perpetuates and worsens global inequality, injustice, and environmental degradation.
Why does the WTO inspire such heated debate? One reason is the perception that although the decisions made within the WTO have far-reaching effects on our daily lives, citizens have virtually no influence over the institution. National regulations and standards for health, human rights, labour, and the environment can be treated as “trade barriers” within the WTO context. Governments’ freedom to set such domestic standards is sharply restricted by WTO agreements. One observer describes these agreements as “little more than extensive lists of policies, laws and regulations that governments can no longer establish or maintain.”[1] Modifying these agreements is extremely difficult as it requires a consensus among some 150 countries.
Many critics of the WTO also claim that its rules are incompatible with the development of the global south. No country has managed to develop an industrialized economy without protecting industries in their “infant” stages, yet WTO rules increasingly demand that poor countries do just that. To make matters worse, industrialized countries themselves frequently break or bend the rules that they pressure developing countries to adopt. Although WTO literature emphasizes the voluntary nature of these agreements, many feel betrayed by governments who have abdicated so much power to structures over which their citizens have so little say. All but the most powerful countries are placed in an impossible position: if they opt out of WTO agreements they risk being isolated from the global trading system, but in “signing on” they compromise their ability to set their own national socio-economic path and their capacity to give their citizens a voice in what that path will be. The Government of Canada has been an enthusiastic supporter of trade liberalization. Canada relies on exports for about 40% of its economic activity, and already has a far-reaching free trade arrangement with its largest trading partner, the United States, which accounts for almost 80% of its total exports. Canada is also the world’s third largest agricultural exporter, and 90% of its imports of non-agricultural goods already enter Canada duty-free.[2] For some, this implies that Canada has much to gain and little to lose from freer global trade. But those concerned with environmental protection, the availability of social services, labour standards, human rights, privacy, food safety, and poverty in the global south (just to name a few) insist that Canada doesn’t need to give up all of its regulatory powers, or force developing countries down an impossible development path, in order to benefit from trade.
This handbook begins by describing what the WTO is, what it does, how it is structured, how it works and how it is financed. This is followed by an explanation of who speaks for Canada at the WTO and who the key governmental players are in determining what Canada says at the institution. Finally, the handbook ends with tips for civil society activists that are interested in better understanding and influencing the WTO. The information that follows will be periodically updated and we welcome your comments and suggestions.
What is the WTO?
The WTO has its headquarters in Geneva, Switzerland, and currently has 149 members, with another 27 in active negotiations to join.[3] It has two basic functions: it is a forum for the negotiation of global free trade agreements, and it is also the enforcer of those agreements.
WTO agreements come about mostly through “rounds” of negotiations among the members. The WTO itself was created by the eighth round of negotiations on the GATT, called the Uruguay Round.[4] The GATT was incorporated into the WTO, and continues to be a central component of its trade rules. Beyond GATT, sector-specific agreements on trade in goods, such as the Agreement on Agriculture, are now in effect. WTO rules have been extended into new sectors by agreements such as the General Agreement on Trade in Services (GATS) and the Trade Related Aspects of Intellectual Property Rights (TRIPS) agreement. The consequence is that WTO trade rules now cover many aspects of social and economic policy, and negotiations are underway on new agreements that would extend WTO rules into even more spheres such as investment and competition policy. Governments are also using the current negotiations to look at a wide array of domestic regulations to see whether or not they are ‘barriers to trade’.
The WTO functions as a forum for the negotiation, implementation and adjudication of global free trade agreements. WTO agreements essentially do two things. First, they establish the rules of trade among the WTO members, most of which restrict or prevent a wide range of government policies. These include local hiring requirements; patent rules designed to foster competition and reduce the cost of medicines; tariffs, quotas, subsidies, and special taxes that encourage local production; and regulations that are considered too strict. This is sometimes referred to as “liberalizing” trade. Second, WTO agreements commit the members to individual targets in tariff reduction and the opening of markets – a practice known as “binding.”[5] Once a state has made a “bound” commitment, it is very difficult for it to backtrack in future rounds of negotiation and still remain within the WTO system. Indeed, the expectation is that such commitments will increase in each subsequent round.
In theory, WTO agreements are based on two basic principles, both of which have to do with “non-discrimination:” countries should not treat some trading partners better than others, and they should not give preference to their own nationals over those of their trading partners. The first principle requires that all WTO members grant all other WTO members Most Favoured Nation (MFN) trading status. With a few exceptions, an advantage granted to one WTO member, such as a lower customs duty rate for a particular product, must be granted to all. [6] The second principle, referred to as “national treatment,” requires that foreign companies operating within a given country must be treated the same as local companies. Imported goods must be treated the same as locally produced goods once they have entered the country, and foreign service-providers must be treated the same as local ones.
While some claim that MFN and national treatment mean that all countries are treated “equally” in the WTO trade regime, the definition of equality that is implied is a rather hollow one. In fact, insisting that developing countries open their economies up to global competition just as much as developed countries leaves them at a very serious disadvantage. WTO rules are heavily weighted in favour of rich countries, and many argue that they are a significant contributor to continued third world poverty. Some of the resources in boxes 4 and 6 address this point in greater depth.
WTO agreements also go much further than providing guarantees that foreign and locals will be treated equally. Two WTO agreements (SPS and TBT) open governments up to challenges if they impose environmental or other kinds of regulations that are higher than the norm, even when these regulations are applied even-handedly to foreign and local companies. Another WTO agreement (the GATS) requires the elimination of public monopolies and other kinds of restrictions on the supply of a service when governments commit to the full force of the agreement. The TRIPS agreement guarantees patent holders, such as multinational drug companies, that they will be able to sell their products without competition for decades.
The WTO is also a partner with the World Bank and the International Monetary Fund (IMF) in pursuing a broader economic liberalization agenda. Most of the WTO’s poorest members have already been required to liberalize their trade practices as a condition of receiving assistance from the World Bank and the IMF.
As mentioned above, the WTO has two main functions: a forum for the negotiation of new agreements, and a supervisory and adjudicative body for existing agreements. Accordingly, the WTO essentially has two different organizational structures, one for each of its two main roles. The Ministerial Conference oversees issues related to the negotiation of new agreements, while the General Council runs the organization and implements existing agreements.[7]
Negotiating New AgreementsThe WTO’s highest decision-making body is the Ministerial Conference, where each member is represented by its Minister of Trade or equivalent. This body initiates and sets the priorities for each new round of trade negotiations, defines the parameters of those negotiations, and finalizes and signs all new agreements. It meets at least once every two years.
Between Ministerial Conferences, the WTO negotiating structure is led by the Trade Negotiations Committee (TNC), where countries are represented by their chief negotiators. The TNC meets at least every two to three months and reports to each meeting of the General Council. It is chaired by the Director General of the WTO.
The negotiating structure under the TNC can change from round to round, as specified by the Ministerial Conference. Various negotiating groups consider particular aspects of the agreements under the TNC’s direction. For more information on how the negotiations are carried out, see the “How Does the WTO Work” section below.
Implementing Existing Agreements The day-to-day work of interpreting existing agreements and adjudicating disputes that arise from them is overseen by the General Council of the WTO, which is second in authority only to the Ministerial Conference. The General Council makes final decisions on most important matters related to the functioning of the organization and its agreements. It also acts as both the Dispute Settlement Body (DSB) and the Trade Policy Review Body of the WTO. The Council meets several times a year in Geneva, and is made up of the ambassadors or heads of delegation of all WTO members.
There are three sub-councils which give support to the General Council: the Goods Council, the Services Council, and the Intellectual Property (TRIPS) Council. Below them are numerous specialized committees and working groups that deal with specific agreements and cross-cutting issues. Several specialized committees and working groups also report directly to the General Council, including the committees on Trade and Environment, and Trade and Development.
When the General Council is functioning as the DSB to adjudicate a trade dispute, it is assisted by two subsidiaries: the dispute settlement panels of experts, which are appointed on a case-by-case basis to adjudicate disputes, and an Appellate Body, made up of seven members elected to four-year terms by the DSB. More information on the dispute settlement process can be found in the “How Does the WTO Work” section below.
The Secretariat of the WTO, which is headed by a Director General, is based in Geneva and has a staff of around 560.[8] The Secretariat has little formal decision-making power but its ability to bias procedures to the benefit of Northern countries can be very influential during trade negotiations. It provides technical support and assistance for the various bodies, meetings, and member countries of the WTO. It also produces reports on member states’ trade practices, publishes analyses of world trade, and handles public relations for the organization.
Most decisions at the WTO are made by consensus without a vote, but there are circumstances in which votes, on a “one-member-one-vote” basis, can take place. In contrast to the weighted voting structures of the World Bank and the IMF, the WTO appears to be a more democratic institution. Beneath the surface, the reality is quite different. Most agreements are first negotiated by a few powerful countries in secret (essentially the United States, the European Union, and whoever else they think they need on board) and then presented to the rest of the members as “an intricate and complex set of strategic compromises that will unravel should amendments be proposed.”[9] We will look first at the trade negotiations process and then at the dispute resolution process
Trade Negotiations There are two things to understand about how WTO negotiations work. The first is the political pattern – how the various countries relate to one another, and in particular what the power dynamics are. The second is the actual negotiating process through which these power dynamics are translated into trade agreements. This involves both formal and informal processes.
Most of the negotiating at the WTO is done by a few powerful countries behind closed doors, who then try to get other countries to sign on through a combination of bargaining and coercion. Traditionally, the dominant club has been the “Quad,” which consists of the four largest WTO members: the United States, the European Union, Japan, and Canada. More recently, another informal but influential group has emerged called the “the Five Interested Parties,” namely Australia, Brazil, India, the EU, and the US.
Other countries also group themselves into negotiating blocs[10]. Most of these blocs play a largely reactive role with respect to the dominant clubs mentioned above. Developing countries have tried to break out of this reactive mould by proposing a set of alternate priorities for WTO negotiations, but so far these demands have been largely ignored.
As for the formal negotiations, WTO agreements are developed through “rounds” of negotiation. Negotiating rounds begin and end with a Ministerial Conference (often referred to simply as a “ministerial”). Since a negotiating round generally takes several years to complete, and the Ministerial Conference must meet at least once every two years, ministerials frequently take place in the middle of negotiating rounds. These tend to be key moments in the negotiating process, testing the level of consensus that has so far been achieved.
When the Ministerial Conference launches a new round of negotiations, it also defines the priorities and parameters for the round and lays out the formal negotiating structure. Talks then begin in the various groups operating under the direction of the Trade Negotiations Committee, as well as in less formal but often more influential processes. Negotiations continue until a new set of agreements is finally reached, usually several years later at another Ministerial Conference.
Between the ministerials, the WTO members are continually engaged in negotiations on numerous issues and agreements. Much of this discussion takes place outside of the formal structures of the TNC and its subsidiary bodies, whose meetings serve mainly to put countries’ positions on the record and to confirm consensus on certain points. Most of the negotiating is done by officials, led by the “chief negotiators” from each country. At times, however, political representatives such as Canada’s Minister of Trade will get together in smaller groupings called “mini-ministerials” in order to try and forge common positions and to inject some political momentum into the negotiations.[11]
The Ministerial Conference must give final approval for all agreements reached in a negotiating round. Ministerial meetings tend to have a “pressure cooker” atmosphere, primarily because WTO agreements are negotiated on the basis of “single undertaking.” This means that all issues remain on the table until a final agreement is reached: “Nothing is agreed until everything is agreed.”[12] Backroom meetings, secret discussions, and rapidly evolving draft texts are the norm. One of the most frequently criticized features of the Ministerial Conferences are the “Green Room” meetings, where 20 to 40 of the world’s largest trading countries meet behind closed doors trying to find a consensus position to present to the rest of the WTO for adoption. The single-undertaking structure is particularly difficult for developing country delegations, which must try to monitor numerous ongoing negotiations with far fewer negotiators and experts.
Dispute Resolution If one country thinks another has broken a WTO agreement, it can file a petition with the Dispute Settlement Body (DSB). Other countries can join in the grievance if they also think their interests have been adversely affected. The disputing parties enter consultations, but if they can’t find a negotiated settlement within 60 days, a Dispute Settlement Panel of three to five independent “experts” from neutral countries is appointed by the WTO to make a ruling.[13] The parties can still settle the case “out of court” at any stage. Either party can appeal the panel’s ruling based on points of law, but they cannot challenge existing evidence or introduce new issues.
The rulings of the Dispute Settlement Body are binding. If the state targeted in the complaint loses, it is expected to comply with the recommendations of the DSB. Sometimes, however, states decide to ignore the rulings of the DSB. In such cases, the WTO gives the complaining state permission to “penalize” the offending country by using retaliatory trade measures – usually tariffs against its products that will have an equivalent value to the offending practice.
In addition to this limitation, WTO rulings have been criticized for failing to recognize legitimate grounds for regulating trade – for example the protection of public safety or the environment. Yet another source of controversy has been the selection of “experts” for Dispute Settlement Panels, as the experts chosen are usually trade lawyers or economists with little expertise in environmental or developmental fields. This has led to some dubious rulings where regulations aimed at protecting public health or the environment have been considered “non-tariff barriers to trade” and thus illegal under WTO agreements.
Where Does the WTO Get its Money?
The annual budget of the WTO Secretariat is around 160 million Swiss francs (US$135 million). This comes from individual contributions from the members calculated on the basis of their share of global trade. The largest single contributor is the United States, at about US$21.5 million per year, though the EU countries together contribute nearly US$57 million.[14] The WTO budget also supports the International Trade Centre, a capacity-building organization jointly supported by the WTO and the United Nations Conference on Trade and Development, and members make special contributions for technical assistance. Canada contributes about CAD$6.5 million per year to the WTO’s regular budget – about the same as Italy, but less than France or the UK. Canada also contributes several hundred thousand dollars per year for technical assistance through the WTO.
Who Speaks for Canada at the WTO?
Canada’s highest representative at the WTO is its Minister for International Trade. The Minister of Agriculture and Agri-Food Canada also attends the Ministerial Conferences, as does the President of the Canadian International Development Agency (CIDA) and a number of other senior officials and advisors.
During the ongoing negotiations of WTO rounds, Canada is represented by a team of negotiators, led by Canada’s chief negotiator to the WTO. In most cases these are Ottawa-based officials from the department of International Trade Canada (ITCan) or another department who specializes in the particular area of trade policy under discussion. They represent Canada in the meetings of the Trade Negotiations Committee (TNC) and all of its subsidiary bodies, and in more informal negotiations with other countries and negotiating blocs. The chief negotiator represents Canada at meetings of the TNC, and accompanies (or sometimes replaces) the Minister at mini-ministerial meetings.
For ongoing WTO work, Canada is represented by the staff of its Permanent Mission to the WTO in Geneva, led by Canada’s Ambassador to the WTO. They represent Canada in the day-to-day affairs of the organization, with the exception of the Trade Negotiations Committee and its subsidiaries. They also serve as Canada’s liaison with the WTO Secretariat.[15]
Who Decides What Canada Says at the WTO?
Ultimately, the decision about what Canada says at the WTO rests with the Canadian Federal Cabinet, which receives regular updates on the status of ongoing trade negotiations. The Cabinet decides what Canadian trade policy is and, in the case of trade negotiations, issues a mandate to the departments doing the negotiating that tells them what they are authorized to agree to. If the negotiators want to go beyond the limits of these instructions, the department has to submit a request to the Cabinet asking for modifications to their mandate.
The lead department for WTO negotiations and trade policy formulation is International Trade Canada (ITCan). Within this department, there is an Assistant Deputy Minister responsible for WTO negotiations, and an elaborate structure for trade policy analysis and formulation (see Box 9). There are three trade policy bureaus at ITCan that do the bulk of this work. Trade Policy I deals with general trade issues like tariffs, market access, and “technical barriers” to trade, as well as regional trade issues and trade remedies (disputes). Trade Policy II is more narrowly focused, dealing specifically with trade in services, investment and intellectual property. A third division, called Transition/Trade, Economic and Environmental Policy, deals with cross-cutting issues like the impacts of trade on the economy and environment. One of the branches of this division – the Multilateral Trade Policy Branch – plays a coordinating role, liaising closely with the heads of the different negotiating teams to make sure that they are all on the same page.
Because trade agreements have become so far-reaching in their implications, most other federal government departments have their own views and concerns about them. With a few notable exceptions, however, most of them do not have a great deal of influence on Canada’s trade policies. Agriculture and Agri-Food Canada (Ag Canada) has the most elaborate trade-related policy structure outside of the Department of Trade and heads negotiations related to agriculture. Finance Canada takes the lead on issues discussed in the Negotiating Group on Rules (subsidies, anti-dumping, and countervailing measures) because these issues affect customs and revenues coming into the Canadian treasury. Environment Canada plays a significant role in environment-related negotiations, though ITCan still takes the lead.
The Privy Council Office (PCO) maintains some expertise on trade issues in order to manage inter-departmental and inter-governmental issues, as well as processes related to Cabinet decision-making.[16] A coordinating committee of Deputy Ministers receives regular updates on the status of negotiations. The provinces also receive regular updates, especially after mini-ministerials and other major meetings. In some cases, especially on trade in services, the provinces have a fair amount of influence, because trade agreements impact on a number of matters under provincial jurisdiction.
As noted above, the Permanent Mission in Geneva represents Canada in the day-to-day affairs of the WTO, but policy decisions are still mostly made in Ottawa. The Permanent Mission informs Ottawa of upcoming agenda items, and ITCan (or the lead department on the issue) responds with instructions, talking points, or desired interventions.
The Government of Canada also relies on “expert advice” from Sectoral Advisory Groups on International Trade (SAGITs), which provide strategic advice to the Minister on sector-specific issues. Many observers argue that the Canadian business community essentially dictates official Canadian trade policy through the SAGITs. There are currently twelve active SAGITs representing various industry sectors which meet three or four times a year. Their members include senior business executives, as well as representatives of industry associations, labour unions, and civil society groups, and are appointed by the Minister for renewable two-year terms. Membership lists are available from ITCan upon request.
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