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The World Trade Organisation: the new World Constitution laid bare

When the Canada-US Free Trade Agreement was concluded in the 1980s, President Reagan described it as the "economic constitution of North America." Recently the Director General of the WTO, Renato Ruggiero, used similar language to describe the WTO. But the WTO is a constitution for corporations. Its rules take little or no account of people or the environment. Steven Shrybman explains why the WTO is such a threat. Published in The Ecologist Volume 29 Number 4, July 1999.

What is the WTO?

The world Trade Organisation (WTO), was established on 1 January 1995, and represents the culmination of an eight-year process of trade negotiation, known as the Uruguay Round. [1] 135 countries now belong to the WTO, and more continue to join. [2] The WTO is based in Geneva, and is administered by a secretariat which also facilitates ongoing trade negotiations, and oversees trade dispute resolutions.

Drawing: men sitting at a boardroom table.

" Let's face it gentlement, we're out to own the Earth, not to save it."

The WTO represents the most important element of an international corporate strategy to codify the rules upon which a global system of investment, production and trade depend. While this agenda is fundamentally the project of the world's largest corporations, it also enjoys broad support from many governments. Their enthusiasm is founded on the faith that sustained, market-driven, growth will bring wealth and economic stability to their nations. Absent from this faith, of course, is any notion of ecological limits, or of the need to address how the proceeds of growth will be distributed. Also missing is any real evidence to support the grand claims of those promoting liberalised trade and investment rules.

The WTO and the global economy

The WTO represents a watershed in the process of establishing a truly global economic order. Because it lays out a comprehensive set of rules intended to guide all aspects of global economic activity, the WTO will undoubtedly exert a profound influence over the future course of human affairs. Indeed it is not unrealistic to regard the WTO as representing effective world government for the first time in human history. There are several reasons that justify such an assessment.

To begin with, we really do now live in an integrated global economy. Multinational corporations control more than one third of the world's productive assets and the organisation of their production and distribution systems has little to do with national or even regional boundaries. Decisions about locating factories, sourcing materials, processing information or raising capital are made on a global basis and any particular product may include components from several countries. [3] The growing dimensions of global economic integration are also apparent in the rapid growth in international trade itself, which routinely exceeds that of even the world's most robust economies. To consolidate these processes of globalisation, the rules upon which it depends needed to be codified in binding international agreements hence the WTO.

Another factor that explains the importance of the WTO concerns the way in which it has extended the reach of trade rules into every sphere of economic activity. Historically, trade agreements were concerned with the trade of goods - for example manufactured goods and natural resource products - across international borders. But under the WTO, international trade agreements have been dramatically extended to include investment measures, intellectual property rights, domestic regulations of all kinds and services. In other words, a great many areas of government policy and law that have very little, if anything, to do with trade per se. This explains why it would now be difficult to identify an issue of social, cultural, economic or environmental significance that would not fall within the ambit of these new, and very expansive, rules of "trade".

But arguably the most important source of WTO authority and influence stems from the powerful enforcement tools it has available to ensure that all governments respect the limits on their authority imposed by its trade rules. Any government found in breach is vulnerable to sanctions that are too severe for even the wealthiest nation to ignore. For example, in the first trade complaint to be resolved under the WTO, US Clean Air Act Regulations were deemed to violate WTO rules. In consequence, the US was given two options - remove the offending provisions of its environmental statute or face retaliatory trade sanctions to the order of $150 million a year.

While previous trade agreements allowed for similar sanctions, they could only be imposed with the consent of all GATT members, including the offending country. Now, WTO rulings are automatically implemented unless blocked by a consensus of WTO members. Moreover, under the rules of 'cross-retaliation', sanctions can be applied to any aspect of the offending country's international trade - or, in other words, where it will be felt the most.

The convergence of these factors explains why the WTO is likely to emerge as the most important international institution ever to have been created.

A Bill of Rights for Multinational Corporations

Many have described WTO rules as an international bill of rights for multinational corporations. To appreciate why the WTO might be described in this way, consider the negotiation process that created it.

Because international trade has in the past been considered an arcane subject relevant only to commercial interests, trade negotiations have traditionally been conducted by trade ministers with no apparent awareness that other societal values might be at stake. For example, when the Canadian Conservative government of Brian Mulroney was asked what, if any, environmental assessment of the impending free-trade agreement with the United States had been carried out, it responded somewhat incredulously that its trade deal was entirely a commercial agreement and that the environment had not even come up once [4] - a truly astonishing assessment about an agreement that dealt explicitly with energy, agriculture, environmental standards, forests and fisheries. Moreover, even as the ambit of trade negotiations grew to encompass many more spheres of economic activity, such as services or investment, no meaningful effort was made to include others in the negotiation process.

Thus, when government consulted on trade matters, it looked exclusively to the business community; that is, large corporations with a substantial stake in international trade. Trade advisory committees, with very few exceptions, represented exclusive clubs for multinational corporations.

Another important norm of trade negotiations is secrecy. Because of the strategic nature of the interests at stake, trade negotiations have always been conducted behind closed doors, with little being revealed until negotiations are virtually concluded. Not only is there no public input or accountability, but many governments - particularly those from developing countries - are also left guessing about negotiations which take place almost exclusively among a few key players.

When trade agreements finally do emerge, they are presented as an intricate and complex set of strategic compromises that will unravel should amendments be proposed. In this way, the normal processes of parliamentary or congressional debate are superseded. Rather, law-makers are presented with a virtual ultimatum - accept the entire package of trade proposals or suffer the consequences of being isolated in a global economy. It would be difficult to conceive of a less democratic means of negotiation.

Because trade agreements are negotiated in this way, they reflect a myopic preoccupation with the interests of large corporations and reveal virtual indifference to the impacts of these commercial interests on other societal goals, such as environmental protection, democratic processes, workers' rights, or cultural integrity. If the WTO regime can accurately be considered an economic constitution for the planet, it is most certainly one that has been written by, and almost entirely for, the world's largest corporations.

The Agenda: Freeing Corporations from Government Regulation

Drawing: men tugging the Earth towards a precipice.

The goal of the WTO is to deregulate international trade. To accomplish this (and with one important exception), WTO rules seek to limit the capacity of governments to regulate international trade - or otherwise "interfere" with the activities of large corporations. In fact, WTO agreements represent little more than extensive lists of policies, laws and regulations that governments cannot establish.

Some of these prohibit measures intended to regulate international commerce, such as controls on trade in endangered species or bans on tropical timber imports. But many others prohibit regulations that might only indirectly influence trade, such as recycling requirements, energy efficiency standards or food safety regulations. Yet other rules go even further by prescribing government measures that have nothing to do with trade at all - for example, prohibitions against government efforts to regulate the activities of foreign investors.

The Challenges Ahead

Because the primary goal of WTO law is to limit government lawmaking and regulatory authority, serious problems will now arise for progressive environmental law and policy - which of course depend on such public controls. In fact, the establishment of free-trade agreements has already created substantial new obstacles to progress in areas of environmental protection, food safety regulation, species protection and resource conservation.

While the subject of international trade may be daunting, if we are to achieve critical environmental objectives, we must either abolish the WTO, or find a way to convert it into an institution that will foster, rather than undermine, environmental goals. This will clearly be a difficult challenge, but one not unlike the struggle waged several decades ago to inform governments and courts unconcerned with, and uninformed about, environmental protection and conservation goals. That resistance was overcome by informing and then mobilising public opinion; by fostering scientific research; and by persistent determination. In the process, policy development and law-making processes were also made more open, democratic and accountable.

The emergence of the WTO will require many of these battles to be fought again, if we are to stem the tide of globalisation and free trade that is already eroding the hard-fought gains we have achieved over the past three decades. Despite this, though, there are two important reasons to be optimistic.

The first has to do with developing a deeper understanding of the underlying causes of the environmental crisis. The corporate campaign for 'free' trade provides the opportunity to examine a host of environmental issues in their proper context, as symptoms of a more profound and systemic problem - unsustainable economic, resource and trade policies. Thus, while pesticides, or even a particular pesticide, can become the target of a national environmental campaign, little attention is paid to the agricultural policies that make the continued use of pesticides inevitable. Of course, regulating pesticides, protecting species, creating parks and controlling pollution are important goals - but we need now to move beyond the symptoms to tackle the root causes of these problems.

The other reason for hope has to do with the need for binding international agreements to confront global environmental problems such as climate change and biodiversity loss. Ironically, in this regard, the WTO could actually be a model for such international environmental agreements. The WTO reveals that when governments are motivated, they will sign on to forceful, proactive and effective international agreements. The challenge, of course, will be to force these same governments to adopt similarly enforceable international agreements for the purposes of achieving the goals of global ecological security rather than to guarantee the narrow interests of large corporations and foreign investors.

The WTO and the environment

A Brief History of the Debate

Canadian environmentalists were among the first to raise concerns about the relationship between international trade and the environment during the Canada-US free-trade negotiations nearly ten years ago. They also played an important role in sounding the alarm that brought these important issues to the attention of environmentalists in the United States, Europe and elsewhere.

As they predicted, trade dispute processes have now become a popular weapon for attacking environmental and conservation measures across the world. Indeed, a GATT challenge to US Marine Mammal Protection legislation played an important role in gaining the attention of US environmentalists and lawmakers during the recent NAFTA debates. In fact, trade and environment issues actually became so troublesome in the US that NAFTA was amended to include (nominal) environmental concerns.

The most significant of these amendments provided some protection from free-trade rules for certain multilateral environmental agreements, such as the 1992 Climate and Biodiversity conventions. The other accommodation to the environmental groups that were foolishly willing to support NAFTA [5] was the establishment of the North American Commission on Environmental Co-operation.

The WTO Committee on Trade and the Environment

During the early nineties, similar developments were also taking place in Europe and elsewhere, and the environmental implications of the Uruguay Round trade negotiations began to emerge as important issues. However, environmental concerns never achieved the prominence needed in this larger global context to force amendments to the agreement that created the WTO. Instead, a long-dormant GATT Committee on Trade and the Environment was reconstituted as the WTO Committee on Trade and the Environment (CTE). The CTE was given a very broad mandate and in late 1996, reported to the first biennial meeting of the WTO in Singapore. While few environmentalists knew of its existence, a handful of environmental groups became actively engaged in its discussions, which ultimately centred on three issues:

It is telling that the Committee's discussions had little to do with broadening environmental initiatives in the WTO context. In fact, in important ways, the Committee has actually become a forum for further asserting the pre-eminence of trade over environmental goals. For example, the Committee has asserted the right of a WTO member to challenge measures adopted by another member, even when taken in accordance with the provisions of a multilateral environmental agreement to which it is a signatory. While few anticipated that the committee's work would actually undermine the integrity of agreements such as the Climate Convention, this is the likely effect of its deliberations. The same criticism can be made of the Committee's discussions about eco-labelling, where environmentalists have again been on the defensive to justify ecolabelling schemes intended to inform consumers about the environmental impacts of harvesting or production processes.

The Defeat of the MAE - an Important Breakthrough

In the autumn of 1998, the forward march of global free trade suffered a significant defeat when efforts to establish a Multilateral Agreement on Investment (MAT) under the auspices of the Organisation for Economic Co-operation and Development (OECD) had to be abandoned. The pivotal moment arrived when the Government of France decided to withdraw from negotiations. In making the announcement to abandon OECD negotiations, France released a report explaining its decision. Prominently featured among the reasons cited were concerns about the impact of the MAT on its sovereign prerogatives to protect culture and the environment. On the subject of the environment, France explicitly acknowledged the critical role that environmental groups had played in exposing the impacts of the MAT on environmental law and policy. [6]

Indeed, the environmental critique of the MAT was among the most powerful exposé's of the disastrous consequences that this international treaty for investor rights would have delivered. The importance of the environmental analysis of the free trade and investment agenda lies in both its accessibility and its universal appeal. While the subject of deregulation may seem obscure to many when it comes to such matters as financial services or airline competition, virtually everyone understands the critical role that law and regulation must play when it comes to protecting the environment and conserving natural resources. Public opinion polling consistently reveals that when it comes to the environment, people expect the government to play a strong and determined role.

Many of the consequences of the "leap of faith" into free trade that was accomplished by the WTO and other trade agreements are now becoming painfully apparent to a growing number of developed and developing countries. This has led to a much broader and sophisticated understanding of the impacts of this global agenda than existed a scant five years ago when the WTO was created. So far, the debate about trade and the environment has been kept at the margins of the WTO and the incremental approach adopted by some environmental groups has yet to yield any meaningful gains. At the same time, trade regimes have emerged as powerful new constraints on the progress of environmental law and policy.

Moreover, the proliferation of trade disputes concerning environmental, conservation, public health measures - all of which have sided with the interests of trade over the environment - has underscored the need to develop a much more aggressive agenda for changing WTO rules. If this goal is to be realised, environmentalists are going to have to play a central role. This will require achieving some measure of trade literacy. The obscurity of WTO rules is a critical and strategic asset for those promoting the globalisation agenda. It is for the purpose of demystifying the rules of this new regime that we next turn to its essential elements.

An activists guide to the key agreements of the WTO

Drawing: the Earth in a lemon squeezer.

The WTO is comprised of more than a dozen distinct trade agreements. [7] Among these, and forming the essential platform upon which the others are established, is the original General Agreement on Tariffs and Trade - the GATT - which was first negotiated in 1947 as part of the Bretton Woods agreements that also established the International Monetary Fund and World Bank. Other agreements of critical importance from an environmental perspective include:

The following offers a brief description of these key elements of the WTO regime.

GATT 1994

The fundamental infrastructure of the WTO can be found in the GATT, which has now been incorporated into the WTO, where it is described as GATT 1994 (throughout this text, simply as GATT). For present purposes, the most important provisions of this core trade agreement can be found in three Articles.

Article 1 - Most-Favoured Nation Treatment (MFN. The MFN rule requires WTO member countries to treat "like" products from a WTO member as favourably as it does from any other member. In other words, discriminating against foreign producers is prohibited. This rule raises serious doubts about the validity of international environmental agreements, which actually require that less favourable treatment be accorded to countries if, for example, they are not living up to their obligations under these environmental conventions. As a recent WTO case involving banana trade between several Caribbean islands and Europe illustrates, the MFN rule also prohibits the use of special trading relationships to support development assistance programmes to poorer nations.

Article III - National Treatment. The NT rule requires all trading parties to treat "like" products of member nations as favourably as it treats its own domestic products. Thus, under the WTO it is unlawful for governments to discriminate against goods because of concerns about the destructive or unethical processes that may have been used to produce or harvest them. By the same measure, it is unlawful under these rules for governments to favour goods on the grounds that they are the product of more sustainable or humane systems of production.

Also, when the principle of National Treatment or Most Favoured Nation status is applied to foreign investors - read corporations - the result spells disaster for efforts to foster domestic economic development. Often multinationals are given more rights in deciding exactly how a nation should 'develop' than that nation's government. Moreover, these rules abdicate to international market forces the critical role of allocating precious and often non-renewable natural resources.

Article XI - Elimination of Quantitative Restrictions. Under Article XI, WTO members cannot limit or impose quantitative controls on exports or imports through quotas or bans. But duties, tariffs and other charges are allowed. This is also problematic from an environmental perspective. Consider the implications of such a rule when applied to such measures as an export ban on unprocessed resources such as raw logs; or as an embargo against the export of agricultural commodities from a country suffering food shortages; or as a prohibition against trade in endangered species, or to ban the export of hazardous wastes to undeveloped countries entirely ill-equipped to manage them safely.

The Agreement on Technical Barriers to Trade (TBT)

It is telling that, in the jargon of international trade law, all environmental standards and regulations are, prima facie, considered technical barriers to trade. The actual provisions of the TBT agreement are detailed and complex, but reduced to bare bones, it establishes:

When nations fail to observe these new and pervasive constraints on their law-making authority, they are vulnerable to international trade complaints and sanctions. It isn't surprising, then, that TBT rules have emerged as important new weapons for challenging government regulatory initiatives. Canada has recently relied upon TBT rules to challenge asbestos regulations in France.

The Agreement on Sanitary and Phytosanitary Standards (SPS)

The provisions of the oddly-named SPS are very similar to those found in the TBT but deal with laws and regulations that concern food and food safety, including pesticide regulation and biotechnology. As with TBT rules, the SPS has proven a useful device for undoing government regulatory initiatives that are unpopular with large corporations. As interpreted by the WTO, the SPS also precludes the 'precautionary principle' as a justifiable basis upon which to establish regulatory controls when the risks warrant action, even in the face of scientific uncertainty about the extent and nature of potential impacts.

One casualty of this particular WTO Agreement has been efforts to negotiate a "Biosafety Protocol" to the Biodiversity Convention, with various countries, mainly the US, threatening WTO trade action should the Protocol require that host countries first consent to transborder shipments of genetically modified organisms. Yet another important feature of this WTO agreement seeks to remove decisions about health, food and safety from national governments by delegating them to international standard-setting bodies such as the Codex Alemantarius - an elite club of scientists based in Geneva. Because of its location and composition, Codex is an institution that is singularly inaccessible to all but a handful of international corporations and business associations that are capable of maintaining delegations in Geneva. Not surprisingly, Codex standards often fall substantially short of those established by jurisdictions closer and more responsive to the interests and views of consumers and health advocates.

The Agreement on Trade Related Intellectual Property Rights (TRIPS)

By employing the convenient device of simply attaching the prefix "trade related" this WTO agreement transforms an entire domain of domestic policy and law into one that is the fitting subject for WTO regulation. The essential thrust of the TRIPS agreement is to compel all WTO member nations to adopt and implement US-style patent-protection regimes. The effect of these rules is to virtually provide US and European multinationals with global patent rights, which can now be enforced by retaliatory trade sanctions. At the same time, the rights of indigenous communities to genetic and biological resources that are held in common are ignored. The result is to facilitate the appropriation of the genetic commons by corporate interests, which can then demand user rents from the very communities that should be considered the proper 'owners' of the genetic resource.

The Agreement on Trade Related Investment Measures(TRIMS)

While this investor-rights agenda is constructed on the same platform of National Treatment and Most Favoured Nation treatment that is common to all WTO Agreements, it goes much further in two critical ways. The first is to allow individual investors virtually unqualified access to international enforcement mechanisms that may be invoked by them directly against nation states. It would be difficult to overstate the implications of this radical departure from the norms of international treaty law, which, with the exception of international human rights, has never created rights even for the benefit of individuals, let alone multinational corporations.

In other words, under NAFTA and MAI prototypes, for the purposes of enforcement, foreign investors are accorded the same status as nation-states. The other critical departure of this proposed investment regime from the norms of international trade law is to be found under the heading Performance Requirements, which actually constrain the implementation of domestic investment regulation, even when applied only to domestic investors.

The Agreement on Agriculture

The free-trade vision expressed by the WTO Agreement on Agriculture is of an integrated global agricultural economy in which all countries produce specialised agricultural commodities and supply their food needs by shopping in the global marketplace. Food is grown, not by farmers for local consumers, but by corporations for global markets. The consequence of this global model is a disaster for the food security of poor countries, as subsistence farms are lost to export producers, but are also extremely problematic for environmental and food safety reasons.

Consider, for example, that the globalisation of food production and trade necessarily requires that agricultural commodities be transported long distances, and be processed and packaged to survive the journey. In addition to sacrificing quality and variety for durability, this system of agricultural trade requires enormous inputs of energy. In fact, when account is taken of all energy inputs, global food production and trade probably consume more fossil fuel than any other industrial sector. That is why international agricultural trade policies are likely to substantially increase greenhouse gas emissions and make climate objectives much harder to achieve.

Other important aspects of the WTO agenda for agriculture can be found in other WTO agreements dealing with food safety standards and biodiversity (Sanitary and Phytosanitary Standards and TRIPS). When taken together, these agreements set the stage for the next 'Green Revolution' the one that spreads biotechnology, in the form of genetically modified foods, across the world.

The Agreement on Dispute Resolution

Prior to the WTO, trade dispute resolution was a matter for negotiation and compromise. While trade panels could pass judgement on whether countries were in breach of their obligations, compliance ultimately depended upon the willingness of each member-state to accept the rulings of trade panels. This was the case because, under GATT rules, retaliatory trade sanctions could only be imposed against an offending nation with its consent. With the creation of the WTO, the requirement for that consent has been removed and trade panel rulings are legally enforceable virtually as soon as they are rendered.

It is also important here to stress that enforcement under the WTO means recourse to the most potent remedies that exist under international law - retaliatory trade sanctions. Moreover, by the norms of conventional legal processes, WTO dispute resolution takes place with blinding speed. Cases are routinely heard, decided, appealed and resolved within a year of being brought. Indeed, it would be impossible to find, in any other legal regime, either criminal or civil, sanctions as quick and effective as those provided by the WTO. It is the effectiveness of its enforcement regime that ultimately accounts for the enormous influence that trade rules will now exert over the decisions of governments.

However confused the reasoning, a review of WTO rulings on environmental or conservation measures reveals two consistent and common themes. The first is the expansive reading given to rules that limit government options that might, even indirectly, interfere with trade. The second is the exceedingly narrow interpretation given to trade provisions that might create space for environmental exceptions to the free-trade orthodoxy. This double whammy has spelled disaster for every environmental or conservation regulation that has found itself in the cross hairs of a trade dispute panel. In fact, none has survived the encounter and, in every case, trade panels have found several grounds on which to rule against the environmental regulation.

Steven Shrybman is Executive Director of West Coast Environmental Law. This article is condensed from the first two chapters of a longer guide to the WTO. For copies, contact West Coast Environmental Law, 1001-207 West Hastings Street, Vancouver. BC V6B 1117, Canada. Tel: +1(604)6847378; fax: +1 (604)684 1312; email: admin@wcel.org.

References

1. See The Results of the Uruguay Round of Multilateral Trade Negotiations: The Legal Texts. Reprinted by the WTO in 1995 - ISBN 92-870-1124-4.
2. Among the various trade agreements for which the WTO has responsibility is the original General Agreement on Tariffs and Trade (GATT) as that agreement has been amended, and a number of other agreements that are specific to various aspects of international trade such as agriculture, technical regulation, investment, services and intellectual property.
3. See for example, Robert Reich, The Work of Nations: Preparing Ourselves for the 21st Century Capitalism p.113 (1992).
4. The Federal Minister for International Trade in response to a question posed on the House of Commons Order Paper. See Frank Tester, "Free Trading the Environment", in Duncan Cameron. ed., The Free Trade Deal, Toronto: Lorimer and Company, 1988.
5. With the exceptions of Friends of the Earth, the Sierra Club and Greenpeace, other major US environmental groups were willing to support the first major initiative of a newly-elected President in consideration of these marginal reforms. In Canada, environmental groups were almost unanimous in their opposition.
6. See Lalumière and Landau, Report on the Multilateral Agreement on Investment (MAI); published by France's Ministry of the Economy, Finance and Industry, 1999.
7. Op.cit. 1.

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