Multinational Monitor

OCT/NOV 1999
VOL 20 No.10


Welcome to Seattle: Ministerial Meeting Debates the World Trade Organization's Agenda for the 21st Century
by Robert Weissman

Trading Away the Environment: WTO Rules Thwart Environmental Agreements, Punish Innovation
by Michelle Sforza

Trading Away Forests: Emerging and Current WTO Threats to Forest Protection
by Rory Cox, Paige Fischer and Victor Menotti

Trading Away Public Health: WTO Obstacles to Effective Toxics Controls
by Patti Goldman and
J. Martin Wagner


The WTO's Slow-Motion Coup Against Democracy
an interview with
Lori Wallach

WTO and the Third World: On a Catastrophic Course
an interview with
Martin Khor


Behind the Lines

Dismantle the WTO

The Front
Deregulating Finance - Calling for Cell Phone Safety

The Lawrence Summers Memorial Award

Names In the News


The WTO's Slow Motion Coup Against Democracy

An Interview with Lori Wallach

Lori Wallach is the director of Public Citizen's Global Trade Watch. Dubbed "the trade debate's guerrilla warrior" by the National Journal, Wallach is a leader in the worldwide movement for fair trade and investment policy. She is co-author of Whose Trade Organization?: Corporate Globalization and the Erosion of Democracy. Her other publications include numerous trade analyses and reports, and chapters in several anthologies. Wallach was a founder of the Citizens Trade Campaign and a founding board member of the International Forum on Globalization.

Multinational Monitor: Who thought up the WTO?

Lori Wallach: The WTO was established in 1995 at the Uruguay Round of the General Agreement on Tariffs and Trade (GATT). It was the brainchild of the European Union and Canada, with the U.S. government playing a more reticent role. But the EU and Canada were pushed by a variety of different business coalitions -- the equivalent of the U.S. Chamber of Commerce -- the European Roundtable of Businesses, and the Canadian Chamber of Commerce.

Their idea was to create a supra-powered international institution to try to limit more active governments. Already the U.S. government under Reagan was going on a deregulation binge, but that was not the case in Canada and Europe.

MM: How was it going to override democratic governments?

Wallach: The basic idea was to fence in the range of government action so as to establish a single global market with uniform rules. Human beings are either labor or consumers. Water, trees, animals -- basically all of nature -- is a resource to be exploited. To exploit these human and natural resources most efficiently, all barriers breaking up this single world market must be eliminated -- so as to maximize efficiency of scale.

Yet, what the corporate interests saw as market "fragmentation" is the diversity of policies, values, cultures and laws that one would consider the blessing of democracy. The WTO was to be a body that would continuously promulgate international standards that would be biased towards promoting commerce over other values and with powerful enforcement to knock down any divergent national standards.

MM: What was the corporate interest institutional vision?

Wallach: As a practical matter, the WTO was envisioned to transform the GATT, which was established in 1947 as a business contract between countries. The GATT was understood to be a contract; it was enforceable only as an agreement between consenting parties. Countries were called contracting parties. It operated like most international institutions, requiring consensus to move forward -- before any decision could be adopted which would apply to or bind any country, every country was required to agree to it.

The GATT's dispute system, for instance, required consensus to adopt any case, much less to adopt any enforcement of it. Any individual country could exercise a sovereignty "emergency break," block consensus and stop implementation of a ruling. That was only done once in the history of the GATT because generally countries thought they benefited more from the rules functioning and they didn't want to undermine the authority of the system. But it existed and was somewhat of a curb on the most outrageous cases that could have occurred.

The transformation that was sought with the WTO was to develop a broad set of international commercial rules that would impose a global regulatory scheme that was favorable to the biggest of businesses.

This regulatory system was to have what is called self-executing enforcement, which is a rare phenomenon in international law. None of the multilateral environmental agreements have it, arms control treaties don't have it, the International Labor Organization doesn't have it, the World Health Organization and UNICEF agreements don't have it. Self-executing enforcement means that the institution is given its own legal personality, like the UN, and it has the capacity to enforce decisions on signatory countries -- which are called Members -- absent their unanimous consent. It also is empowered to facilitate further rule-making that binds all members even in the absence of their explicit consent. At the WTO, a two-thirds vote of the membership can bind all the members.

That is a totally different phenomenon than the notion of being a party to a contract from which you can walk away. For instance, under WTO rules, it requires unanimous consensus to stop the institution from implementing a decision issued by a WTO tribunal or authorizing permanent trade sanctions against countries that refuse to change their domestic laws to comply with a WTO decision. There is no other international agreement that requires every single signatory country to agree in order to stop action.

The combination of much broader, expansive rules and stronger enforcement was an enormous transformation that was not well understood at the time it was imposed on governments around the world. This subtle but incredibly effective expansion of WTO power is why we often say it is carrying out a slow-motion coup d'etat against democratic, accountable governments.

MM: What is the WTO's scope of action?

Wallach: The WTO itself is the enforcement body. Think of it as the head of the octopus. But the octopus has 12 arms -- 12 underlying, substantive sets of rules that are free-standing agreements. One of those is an updated version of GATT -- the General Agreement on Tariffs and Trade. It covers trade in goods, tariffs and quotas on trade in goods.

What was added during the Uruguay Round are 11 free-standing agreements on a whole set of issues that you would never think of as particularly related to trade. There are 800 pages of regulations under these 12 different agreements. Obviously a global free trade agreement would require one page -- cut tariffs and quotas. Instead, the WTO is managed trade -- corporate managed trade.

The 12 agreements cover services, food safety, environmental and other product safety standards, agriculture, subsidies, intellectual property, investment rules, and government procurement. Those agreements constrain government actions -- they constrain both the goal a government seeks and the means it uses to obtain them.

Take the rules about standards. In the food area, a government is not allowed to have an environmental goal, an animal welfare goal or a consumer information goal in setting up a standard that limits trade in food. For instance, the U.S. ban on DDT had more to do with what it did to birds -- to their egg shells -- than with what its effect on humans. That would not be allowed as a goal under the WTO. You can't seek to help the environment through food standards.

Then the means are tested, and you have to always use the "least trade restrictive means." This is a huge element of the imposition of commercial objectives over all other values and goals. What this means in practice is that when you are making a health standard or a consumer information standard, the first thing you have to think about is not its efficacy, or how politically practical it is, but its impact on trade. If the trade effect is not the most minimal possible, you have to change it, regardless of how effective it is otherwise.

MM: How are WTO rules enforced?

Wallach: These goals and means tests are enforced through the WTO dispute settlement system. That system sets up free-standing tribunals. The WTO includes a system for resolving cases where one country can challenge any other country's laws -- federal, state, or local -- or even the policy outcome of any law.

First, there's a consultation period. The country which has the complaint tries to get the other country to change their law before a formal case is filed.

During the consultation phase, especially when there is a dispute between a rich country and a developing country, frequently the developing country just preemptively dumps its law. Often this happens even if a country thought it could win, because of the expense of defending the law for a year in Geneva.

The threats are working even on powerful rich countries that have the resources to defend their laws. The European Union, for example, had a Europe-wide ban on the sale of furs caught with steel jaw leg-hold traps, which are banned in a number of countries because they're considered very cruel. The U.S. and Canada still use them, and the U.S. and Canada threatened WTO action. As a matter of WTO jurisprudence, the European Union would have lost the case -- countries are not allowed to look at cruelty to animals in setting market access conditions. So, in response to a threat of a case, Europe basically dumped the implementation of its ban.

If the consultation does not resolve the dispute, then the complaining country asks for the formation of a panel.

MM: How are the panels formed?

Wallach: WTO tribunals consist of three trade experts chosen from a roster. The WTO Dispute Settlement Understanding sets up the criteria to serve on one of these panels. The criteria ensure that the judges will have a built-in bias towards maintaining the status-quo system, as well as making sure commercial values triumph over others. There are four ways you can get on the roster: 1) you have worked at the GATT; 2) you have represented a country at the GATT or WTO; 3) you have worked at a high-level trade job in your government; or 4) you are a private trade attorney who has published in international trade treatises. Which is to say, if you're not part of the international trade elite status quo, you are not going to sit on a WTO panel. It doesn't matter if you are a brilliant trade lawyer who happens to work at the Sierra Club. You wouldn't qualify, absent having worked at the U.S. Trade Representative's office before working at the Sierra Club.

Unlike a court, there are no conflict-of-interest rules that mean anything. In fact, we discovered a case where a former head of the GATT -- Arthur Dunkel -- was appointed to judge the Helms-Burton law (related to the U.S.-Cuban trade battles). Dunkel was at the time sitting as the chairman of the committee of the International Chamber of Commerce that had just issued a paper arguing that Helms-Burton violated WTO rules and had launched a global campaign against Helms-Burton. He was also on the board of Nestle's Cuban subsidiary, which would directly benefit if these trade rules that were being challenged were changed!

MM: What is the public's role in the process?

Wallach: The three-person tribunals sit in secrecy. The only written procedural rule in the entire WTO dispute settlement understanding is a requirement that all documents, proceedings, panels and discussions are confidential. There's no ability for the press, the public, or even the attorney general of a state whose law is being challenged even to be in the room during a tribunal's proceedings. The U.S. now must release the U.S. briefs filed on behalf of its citizens at the WTO only because Public Citizen won a lawsuit in 1992 forcing the government to do so.

The WTO now publishes on its web site summaries with a very polished, smoothed-over version of "country A thinks country B's law about item C is not kosher; we will let you know in a year and a half whether or not the law survives." Otherwise you only know the subject matter.

A truly stunning story is of a WTO panelist who was in Washington on summer holiday in August, during one of the WTO challenge to the U.S. Clean Air Act by Venezuela. He showed up with his teenage son, both in shorts, at Public Citizen's Capitol Hill office. He had heard a rumor that Public Citizen and the Sierra Club had tried to file an amicus (friend of the court) brief about the case, even though no amicus briefs are allowed. He was interested if in fact there was important information that he was not being allowed to see. He asked whether we could provide him a copy as a private tourist, and of course we gave him a copy.

Even though these panels are now empowered to judge food safety laws, intellectual property rules and health issues, there is no requirement that there be any but trade expertise on any of the panels. Nor is there any requirement to seek outside expertise. The panelists are allowed to ask for information, but there's no requirement that, for instance, the World Health Organization must be the substantive authority to decide the pros and cons of a health law.

MM: What are the consequences of a tribunal's hearing?

Wallach: After hearing the case, the tribunal issues a ruling. The ruling is automatically binding unless there's a consensus among all the countries -- including the winning country -- to stop its adoption. Once it's adopted, there's a period that cannot exceed 15 months during which the country that lost the case must change its law to comply with the orders of the WTO.

Trade sanctions are automatically adopted if a country hasn't changed its laws within a reasonable time period. For instance, right now, the U.S. has challenged Europe's ban on the sale of meat contaminated with artificial growth hormone residues. The European public is outraged about the prospect of being forced to eat this stuff. As a political matter, the European Union has decided it can't change the policy, so as a result it is facing hundreds of millions of dollars of trade sanctions every year from the U.S. The kind of sanctions we're talking about include a 100 percent tariff on oats exported to the U.S. from Europe. Eighty percent of the oats imported for human consumption in the U.S. come from Europe. Oats are a low-cost, nutritional food. The price of oats has now doubled. So suddenly your cereal is more expensive. And now we have a lose-lose situation, where consumers in Europe have to have tainted meat and consumers in the U.S. have to have their cereal too expensive.

There is no outside appeal from a WTO decision. There is only an internal appeal to an appellate body whose staff is paid by the WTO. So far the appellate body has not reversed a single one of the 24 cases to have gone through the whole WTO system.

The track record of this whole system is that basically the countries that have the money to file win. Of the 24 cases that have made it through the system, the country which filed the case won in all but three instances. The U.S. has filed nearly half the cases and has by far been the big aggressor at the WTO. They have the cash to use this tool and know that if they file they typically win (though two of the three cases where the aggressor that filed the case didn't win were U.S. cases). Very few cases have been brought by developing nations, because it is a very expensive process. They have to hire outside attorneys to really start the case.

MM: How does the Technical Barriers to Trade agreement work?

Wallach: The WTO's Technical Barriers to Trade (TBT) Agreement covers all standards except those related to food safety. The basic rule of that agreement and also for the food standards agreement is even for standards that treat domestic and foreign countries identically (i.e. there is no discrimination against foreign products) a country's level of protection is additionally capped.

The old GATT had a rule that said you can't discriminate between domestic and foreign producers or products; the WTO additionally sets value decisions. Under the TBT agreement, a country must base its domestic standard on an international standard if such a standard exists or its completion is imminent. The only exceptions to using the international standard that are defensible are fundamental climactic, geographic or technological problems. Rationales for exceptions like "We don't trust that inspection system, so we want to ban that toxin" are not allowed.

A case epitomizing the worst of the TBT is Canada's current challenge against France's ban on asbestos. Canada is using the TBT Agreement to argue that France cannot ban asbestos because the international standards -- at both the International Labor Organization and the World Health Organization, which have been very heavily influenced by industry -- require a contained use of asbestos instead of an absolute ban. Because those are the international standards, the only legitimate defense under WTO rules that France can put forward for why it does not have a "controlled use" standard (i.e. regulating, containing and labeling, instead of banning) would be fundamental climactic, geographic or technological reasons. Obviously, France's issue isn't one of those three -- their issue is that the stuff kills people, it can't be regulated well, there is no safe use of it, and so they want to ban it. Now the whole European Union has decided to do the same thing, and it's going to cause an even greater trade fight.

That case is still under dispute. It's unclear how it will be ruled on, but if you interpreted the TBT as is, without putting any political twist to tone it down, Canada would win its case.

MM: Does the WTO agreement on food safety -- the Sanitary and Phytosanitary Standards (SPS) Agreement -- follow the same principles as the TBT?

Wallach: Same outcome, different rules. The SPS Agreement -- which is GATT-ese for food safety standards -- establishes that member countries should base their food safety standards on international standards. The food standards listed are those of the Codex Alimentarius, a UN-affiliated body which is very heavily influenced by industry. If a country's standards are less protective than Codex or at the Codex level, they are defensible. If they provide a higher level of protection than Codex, a country can only maintain them if it meets a long list of tests.

The Sanitary and Phytosanitary Agreement is particularly pernicious because it eviscerates the Precautionary Principle. It explicitly requires that a certain level of scientific evidence is required in advance of acting to protect food safety.

If a country's standard is higher than the international standard, it must prove there is a certain level of scientific evidence to support its regulation. The evidence must show not just that a risk exists, but that in fact a risk exists that is at a certain level of threat to your population, and that the way you intend to deal with it is scientifically proven to be the way to do it. Of course that's a fallacy -- that's promoting science into what are value decisions.

But that inappropriate elevation of science is used to basically trip up the ability of any government to put the burden on a company to prove their products are safe. The use of science in this way requires that the governments prove a product is dangerous -- exactly the reverse of how many governments' regulatory systems work.

It was this backwards logic that was used to sack the European ban on beef tainted with artificial hormone residues. Europe said, "We know the hormones themselves are carcinogens. There is not complete evidence about what happens when the hormone is ingested as a residue in meat, as compared to direct exposure to the hormone itself. And because there is no long-term data on its safety, we as a precautionary matter are going to act to stop avoidable, perhaps irreversible health harm to humans in the future. We intend to ban this stuff until the industry can prove to us that it is safe in the long-term." This was a ban that was for domestic use, as well as for imported meat.

The SPS Agreement was used to rule against that ban because the European Union had put the burden on the companies to prove the beef was safe. Under these WTO rules, the governments have to prove something is dangerous to keep it off the market.

That's for food products for humans. These rules also cover invasive species issues. If the case deals with issues other than human health – that is, with the health of an animal or plant, i.e., the threat of some invasive species coming in and wiping out some domestic plant or animal -- the test is even more difficult. In every SPS case that has been brought on plants and animals, the law that's been challenged has been taken down.

MM: Even though there are a handful of cases, it doesn't seem that the harms have been as bad as the rules might suggest.

Wallach: There are two answers to that. First, the WTO hasn't been fully implemented yet. Some of the harshest rules related to intellectual property and investment services will be applied to the developing countries that are the majority of the 134 members of the WTO over 10 to 15 years. So all of the wreckage that has happened already has been with a good third of the rules not implemented at all.

And even the rules that are implemented have not been fully enforced. There are many instances of laws that are clearly outside the rules where the cases have not been brought yet. This is why we describe this as a subtle, slow-motion coup d'etat -- we've seen countries not acting so as to avoid any future challenges. And those are not as obvious or easy to document.

In one example we do know about -- which we know is the tip of the iceberg -- the state of Maryland was going to pass a selective purchasing law relating to the military dictatorship of Nigeria. The U.S. State Department sent a platoon of lobbyists to Annapolis three days before the vote, which had been expected to pass handily. The State Department lobbyists said, "Stop. This will violate WTO rules. You're going to lose, and we will charge you for the defense. You're not even going to be at the defense table." Ten votes swung and the Maryland legislation went down by one vote.

Who knows how many other measures have been defeated that way.

My second response is that I'm surprised in the opposite way -- that so much damage has already happened, considering that a full third of the WTO rules haven't been implemented and the rules that are in force haven't been very well enforced.

There's already such a list of cases where either through the chilling effect or through threats, laws have been sacked, chilled, weakened. These are in addition to the 24 cases that have gone through dispute resolution. The damage is much larger than I thought it would be at this point, given the long phase-ins. It is the WTO's actual record that is causing such a global build up of opposition to it.


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