Analysts Praise Year-Old WTO, But Give It Incomplete Grade


IT was stodgy. It trudged along slowly. But for 50 years, the General Agreement on Tariffs and Trade pushed global trade barriers lower, stimulating both commerce and world economic growth.

Can its successor organization, the World Trade Organization (WTO), continue that progress?

''It has had a credible first year,'' says Gary Hufbauer, a senior fellow at the Institute for International Economics, a Washington think tank.

''The machinery is running. But we don't know what the output will be. It is too early to tell,'' he says.

In the tough, often bitter realm of trade management, the WTO is off to a predictably slow start:

* The Geneva-based organization sports a new dispute-resolution process. But of 21 pending trade disputes from bananas to grain, no rulings have been made.

* Last year's biggest trade dispute, between the United States and Japan over automobiles, was not even brought before the body, raising questions of whether big nations want to play by the new umpire's rules.

* WTO members have not finished talks on admitting Russia and China as members.

* Nor has the new trade body concluded negotiations in certain areas of business not dealt with by the huge Uruguay Round trade agreement, signed in April 1994.

Some of these new areas are important: telecommunications, financial services, and audiovisual goods.

But if the pace is slow and the style not pretty, the results of trade liberalization have been stunning: In the 45 years up to 1994, trade in goods posted a 14-fold increase. That boom fueled a more-than five-fold rise in global output of merchandise.

The Uruguay Round, the last and hardest of eight negotiations under the General Agreement on Tariffs and Trade, expanded the GATT's scope to include trade in services and intellectual-property rights. The Uruguay Round also gave the world's trade umpire the name originally planned in 1944 for a similar organization - the WTO. (No organization of that name was created in the 1944 conference at Bretton Woods, N.H., which did create the International Monetary Fund and World Bank.) The conferees could not agree and the GATT was formed only in 1948.

Undoubtedly the WTO will face its share of clashes as it deals with various trade disputes. Trade issues are too important politically to be bargained over with ease.

Power struggle

For example, when the WTO had to select seven members for an appellate body for trade disputes,the trading body soon found itself mired in politics.

Both the European Union (EU) and the United States wanted two seats each on the panel, which may have the final say on some trade disputes. This caused most other member nations and customs territories to raise more than their eyebrows. It seemed that the titans of trade were already trying to dominate the infant WTO.

''Having the EU and the US in a dominant position just wouldn't have flown,'' said Don Kenyon, Australia's ambassador to the WTO and chairman of the dispute-settlement body. ''Since the EU and the US are the largest in trade they are involved in the most disputes. It would have smacked too much of the robber in charge of the bank.''

Finally, the US and the EU agreed to one seat each. This compromise, reached last fall, may have actually strengthened America's position, Mr. Kenyon says. ''It shows a willingness on the part of Washington to trust the system, and it increases the moral authority of the US in the system.''

But America apparently didn't trust the new system to resolve its longstanding auto dispute with Japan.

If the Clinton administration had done so, it might have revealed weaknesses in the WTO's problem-solving power, says Bruce Stokes, senior fellow and director of trade programs at the Council on Foreign Relations. Had Washington won a judgment against Tokyo, and the WTO instructed Japan to liberalize its auto-parts procurement and auto-sales market, ''you can assume that Japan would have put its domestic concerns above all else and failed to comply,'' Mr. Stokes says. ''That would have meant the No. 2 economy in the world was basically an outlaw.'' If the WTO had ruled against Washington, he adds, American popular support for the WTO, already in question, would have fallen through the floor. ''People would be asking: 'What good is this thing?' ''

If it isn't perfect, the new dispute-resolution process does give the WTO greater power than the former system.

New dispute process

Trade differences brought before the WTO and not resolved within 60 days go to a panel of trade experts. The panel recommends an action based on global trade rules. If one of the disputants disagrees with the panel's legal interpretation of the trade rules, it can go to the appellate body, which has 60 days to reach a decision. This decision is binding, and any country refusing to abide by the decision will be subject to WTO-authorized trade sanctions.

The US was the principal architect of this new dispute mechanism.

''We were frustrated with the old system,'' said Andrew Stoler, deputy US trade representative to the WTO. ''We brought and won most disputes in the old system, but the losing parties always delayed. The WTO dispute settlement is designed to satisfy those parties who win.''

Whereas the GATT applied only to the trade of goods, the WTO covers goods, services and intellectual property.

''The whole trading system is now centered on the WTO,'' says John Jackson, a trade expert at the University of Michigan, Ann Arbor. ''It makes it easier for goods to cross borders without government intervention and reduces government tariffs, or taxes. That offers consumers more diversity and more choice of products that just wasn't available 20 or 30 years ago.''

For example, recently a specialty shop opened in Ann Arbor offering a vast array of imported cheeses and wine, Professor Jackson says. And in Europe, one can now buy a US farm-raised turkey.

The hitch comes when nations don't agree on how to interpret trade treaties.

For example, the US wants Europe to open its meat market. Since 1989, the EU has banned imported meat with certain added hormones. In the US, these are certified as safe for human consumption. The EU says it is just heeding the call of consumers who don't want hormones in their meat. This spat will likely go before the WTO.

Bananas are another case: South American bananas rarely reach the market in most European countries. Not because banana splits are considered unappetizing, but because EU quotas favor some former European colonies. This policy has gotten under the skin of the US, Guatemala, Honduras, and Mexico, which have asked the WTO dispute body to consider the issue.

Of the 21 disputes brought to the WTO so far, the US is involved in 10.

The first panel decision, expected by the end of January, involves Venezuelan and Brazilian complaints about US pollution standards for petroleum. The case illustrates a hot-button issue for WTO critics: that basic environmental and labor standards are not set in current global trade treaties. But how to include standards that satisfy diverse nations is tricky.

Each of the roughly 110 WTO members has one vote. So each nation carries a degree of clout. But in practice, Mr. Stoler says, ''The EU, Japan, and the US are much more important than others. While a country might do something Senegal or Norway wouldn't approve of, it wouldn't think of doing it if the US wasn't part of the deal.''

Some big nations have yet to join - a fact that highlights how unfinished the organization is. China has long sought to enter the world trade mainstream, and recently it announced major tariff cuts to win its way into the WTO. But its formal entry, clouded in part by political concerns, appears some way off.

You've read  of  free articles. Subscribe to continue.