For Richer or Poorer: Facts and Fiction about Trade and Economic Gains in the Developed World and Economic Results of the WTO in the U.S.

In the early 1990s, many economists argued that the opening of foreign markets for U.S. exports under NAFTA and the WTO would create jobs and increase income in the U.S. As Congress was considering the WTO and other Uruguay Round agreements in 1994, the President’s Council of Economic Advisers claimed that the adoption of the package would increase annual U.S. GDP by $100-200 billion over the next decade.  Others claimed that its adoption would lead to a decline in the U.S. trade deficit.  President Clinton even went so far as to promise that that the average American family would gain $1700 annually from the WTO’s adoption. 

The growth projections were revised drastically downward shortly after the WTO came into effect. By 2002, the U.S. trade deficit had grown to more than four times its pre-WTO size, and millions of U.S. jobs—including almost two million manufacturing jobs—have been lost during the era of the WTO. Annual average U.S. family income did not increase by $1700 in any year since the WTO passed, much less in each year. Indeed, as this chapter describes, one cannot prove, either using trade theory models or empirically, that most Americans have benefited from the WTO—yet it can be shown that the economic well-being of many has declined. In short, few of the claims made about the benefits that would flow from greater trade liberalization can be shown to have been even remotely accurate.  This, however, has not stopped another round of ridiculous projections and promises regarding the economic benefits that would follow if a “Doha Round” is launched.

Our key findings on the economic impact of the WTO regime at home include the following:

       A large increase in the volume of international trade has failed to produce better jobs or higher wages for most Americans.   Wage increases have lagged far behind the growth in trade and investment volumes.   For instance, in the U.S. from 1946-73, there was an 80% gain in median wages, yet although trade now represents two times the share of U.S. economic activity that it did in that period, from 1972-2000, U.S. median wages were almost flat.

       The U.S. lost millions of jobs as the U.S. trade deficit widened during the WTO era and the composition of the workforce shifted.  U.S. export growth between 1994 and 2000 created an estimated 2.7 million jobs, but faster import growth eliminated 5.8 million, creating a net loss of three million jobs.  The composition of jobs also shifted significantly during this period as the U.S. shed manufacturing jobs but gained service-sector jobs. The U.S. manufacturing sector has been in extreme crisis during the era of NAFTA and the WTO: between 1993 and 2003, 1.7 million jobs have been lost.  Meanwhile, the high-end professional service jobs we were all told by WTO boosters would be our happier future when the industrial jobs left the U.S. are also now being outsourced.  Three million high-end service sector jobs—doctor, computer programmer, engineer, accountant and architect jobs—are all forecast to be outsourced overseas in the next decade.

       The explosion of the U.S. trade deficit from $97 billion in 1994 to $436 billion in 2002 continues to limit economic growth at home.  When the U.S. runs a trade deficit, imports exceed exports and the deficit is subtracted from the nation’s GDP.  The trade deficit is now estimated to exert a 5.6% drag on U.S. economic output, a level that Federal Reserve Chairman Alan Greenspan has labeled “unsustainable.”

       Nearly all economists agree that trade has been one of the factors that has increased income inequality in the U.S. in the last two decades.  This is both a prediction of trade theory and an empirical finding in a large body of research. Not so long ago, from 1967 to 1980, income inequality in the U.S. was actually declining.  The poorest households had increased their share of total income by 6.5% while the wealthiest fifth’s share decreased by nearly ten percent.  Yet the globalization era of the 1990s has brought greater inequality, with the bottom fifth stagnating while the top fifth continued to increase its share of total income. While median family income increased by approximately 0.5% a year through the 1990s, U.S. corporate profits were up 88% and corporate CEO pay rose by 463%.

       Trade liberalization has contributed to income losses for the 75% of U.S. workers without a college degree. Using high-end estimates of the impact of trade on inequality and adding it to the indirect impact of trade on workers’ wages via deunionization and other factors, calculations by Weisbrot and Baker show that   trade liberalization has cost U.S. workers without college degrees an amount equal to 12.2% of their current wages. For a worker earning $25,000 a year, this loss would be slightly more than $3,000 per year.

       The human and economic cost of some 1.7 million jobs lost in the U.S. manufacturing sector since 1993.  Government statistics suggest a high level of long-term unemployment among displaced manufacturing workers.  For those who do find new positions, they are overwhelmingly service-sector jobs with considerably lower pay and benefits.  The manufacturing sector is expected to continue hemorrhaging jobs; of the 22 million jobs expected to be created in the U.S. between 2000 and 2010, only 187,000 (0.1%) will be manufacturing jobs.

       Credible employer threats to move production facilities overseas have undermined unions and depressed wages for many workers.   A Cornell University study shows that threats by employers to relocate overseas made during union organizing efforts have increased in the NAFTA and WTO era.  Campaigns where the employer threatened to move to another country if the union prevailed have had a substantially lower success rate (38%) than campaigns where no such threats were made (51%).   It is also striking that the unionization rate has declined the most rapidly in the manufacturing sector, the sector in which job losses and factory relocations have been most prevalent in the 1990s.  It can reasonably be assumed that trade liberalization under the WTO has weakened workers’ bargaining power in manufacturing and depressed wages in ways that would not be picked up on standard economic models.

Warning: The WTO can be Hazardous to Public Health

Corporate-driven globalization under the WTO has sharply increased income disparity, which the WHO has identified as one of the key correlates of a country’s health status.  Trade liberalization is producing greater income inequality between and within nations, which in turn, has led to greater disparities in public health conditions and outcomes.  In the area of public health, we again find that WTO challenges—or even threatened challenges—have already been used to undermine important public health policies on the grounds that they constrain or interfere with trade.  Because many public health officials and advocates have not focused on the WTO’s implications, in this chapter we analyze WTO cases regarding public health but also describe how specific WTO rules set new constraints on a panoply of key public health goals and policies:

       Tobacco and alcohol control.   The Technical Barriers to Trade (TBT) Agreement sets constraints on national and state policies regarding labeling of products and product standards such as cigarette “plain packaging” rules and warning labels on alcohol and tobacco products.   The General Agreement on Trade in Services (GATS) covers distribution, marketing and advertising services for tobacco and alcohol and the EU has led WTO calls for the elimination of the alcohol distribution monopolies that 18 U.S. states use to control access to that product.

       Bans or controls on toxic substances.   The U.S. has threatened WTO action under the TBT agreement against various countries for domestic bans or limits on phthalates, lead and polyvinyl chloride (PVC).  In addition, harmonization negotiations currently underway regarding chemical classification could implicate thousands of state and local right-to-know rules.

       Government procurement policies promoting health.   The WTO Agreement on Government Procurement requires government purchasing decisions to be based only on commercial factors, meaning that governments cannot give preference to companies that provide workers healthcare benefits or whose products are made using less-toxic processes.

       Toxic waste.   Under the TBT requirement that government policies be “least trade restrictive,” the U.S. is claiming that a European-wide directive requiring producers to safely dispose of computer, cell phone and other toxic products is more burdensome than necessary to U.S. companies.

       Access to and safety of medicines.   The creation of a worldwide pharmaceutical patenting system under the WTO’s Agreement on Trade-Related Aspects of Intellectual Property (TRIPs) has raised pharmaceutical costs in the U.S. and further restricted the availability of lifesaving drugs in WTO developing countries.   Even though the current patent and licensing regime has only recently been accepted in developed countries (Switzerland for example, did not recognize drug patents until the 1960s), developing nations around the world are required to adopt monopoly patents on medicines.

       Access to healthcare.   The definition of services covered under GATS rules includes many public health issues such as access to and regulation of health care, health insurance, hospitals, nursing and homecare and the qualifications of medical professionals.

       Water and sewage infrastructure.   GATS rules also promote the privatization and deregulation of services which raise serious public health issues regarding access to and quality of such basic services as safe drinking water, solid waste collection and sewage systems.

The impact of these constraints is further demonstrated through in-depth analysis of the following cases:

       The refusal of the American Gerber Products Company to comply with Guatemalan infant formula labeling laws that implemented the WHO/UNICEF “Nestle’s Code” on the grounds that the laws violated trademark protections provided in the WTO’s TRIPs agreement.   The Guatemalan law forbid pictorial depictions of healthy babies aimed at inducing illiterate people to replace breast feeding with formula which, when mixed with unsanitary water, was causing an epidemic of avoidable infant deaths.   Gerber refused to remove its trademark “Gerber Baby” from its labels.  The law might have withstood the threatened WTO challenge. However, to avoid the prohibitive cost of mounting an uncertain defense, Guatemalan authorities instead exempted imported formula from this important public health law, whose success in saving babies’ lives had led to Guatemala previously being held up as an example by UNICEF. 

       Canada’s outrageous WTO challenge of France’s asbestos ban. While a strict reading of WTO rules would have resulted in the panel overturning the ban, the enormous political pressure surrounding the case pushed the WTO tribunal hearing the dispute to apply various legal contortions that resulted in a ruling that the law did not violate WTO terms. Unfortunately the jurisprudence established with this political escape route also could limit use of WTO exceptions that can apply to health policies in future cases.

       The long-running U.S. trade campaign to protect big Pharma’s drug monopoly profits.  The U.S. initiated a formal WTO challenge of a Brazilian law on compulsory licensing of medicines and threatened Thai and South African affordable drug access laws with WTO challenges.  In 2002, the U.S. also scuppered efforts to reach a WTO deal on permissible imports of compulsory-licensed drugs and then in August 2003, finally accepted an agreement that imposes an array of new requirements on nations seeking to import compulsory licensed drugs. Compulsory licensing is permitted under WTO rules, but many countries have been convinced not to use compulsory licenses because of WTO threats and the related fear of having to spend precious time and resources fighting the U.S. and other developed nations in the WTO.  Yet when the U.S. faced the 2001 anthrax crisis, it considered issuing a compulsory license for the antibiotic CIPRO even as it was seeking to stop developing countries from using compulsory licenses.

       U.S. trade threats against tobacco regulations around the world. The U.S. successfully fought to exclude language from the recent World Health Organization agreement on tobacco regulation that would have specifically given the agreement’s health rules priority over international trade laws.  U.S. cigarette manufacturers have also threatened action under the trademark protection rights of the TRIPs agreement and other trade claims to overcome cigarette labeling and tobacco import control laws in foreign markets.  For example, U.S. cigarette companies argued that a plain-paper packaging law would violate Canada’s NAFTA and WTO intellectual property obligations and would have required the Canadian government to pay millions of dollars in NAFTA expropriation claims.  The same companies have also fought off regulatory bans on their “mild” and “light” products (which have been shown to mislead consumers into believing that these cigarettes are less harmful than other varieties) on the grounds that these trademarked brand names are protected under WTO rules.  In the 1980s, tobacco companies worked closely with the Office of the U.S. Trade Representative (USTR) to force open cigarette markets in Japan, South Korea and Taiwan, and filed a formal GATT complaint in the early 1990s that ultimately overturned Thailand’s cigarette import ban.  According to World Bank estimates, the opening of these markets has helped push Asian smoking rates ten percent above what they would otherwise have been. 

       Downward harmonization on testing of drugs for carcinogenicity.   In order to fulfill its harmonization obligations under the WTO, the FDA in 1996 proposed changes to its guidelines for testing the potential carcinogenicity of medicines being approved for U.S. use.  The FDA had previously required companies to test drugs on two species (typically mice and rats) because tests on rats alone often failed to produce evidence of carcinogenicity where it was subsequently found in mice.  The new WTO “harmonized” testing standard approved by the FDA, however, allows drug companies to drop long-term mice tests and substitute them with less reliable short-term second species tests.

       Downward harmonization of drug testing ethics.   The U.S. has played a key role in lowering other nation’s standards through WTO-promoted international harmonization by pushing the international industry-dominated standard-setting body to adopt the U.S. practice of using placebos in clinical trials.  The use of placebos in drug trials is uninformative and unethical compared to active-controlled trials where all patients receive treatment and doctors can better judge whether a new drug is better than the existing version.  In placebo trials, however, a control group goes untreated and the results can only indicate whether the new drug is better than no treatment at all.

The WTO on Agriculture: Food as a Commodity, Not a Right

This chapter examines how WTO rules have led to increased dumping of subsidized agricultural commodities resulting in steep drops in the prices paid to farmers around the world for their crops. Farmers in rich and poor countries have only seen their incomes decline, with many losing farms and livelihoods under the WTO regime.  In the developing world, the combination of sharply lower prices and the effects of WTO rules regarding the patenting of seeds and plants under the WTO agreement on Trade-Related Aspects of Intellectual Property (TRIPs) has led to increased hunger in many nations.  In a perverse twist—which actually demonstrates how the WTO’s Agreement on Agriculture (AoA) rules are not about “free trade”—while prices paid farmers have plummeted, consumer food prices have not declined and in many instances, have risen.  Meanwhile, the WTO has forced the elimination of domestic policies aimed at ensuring food sovereignty and security in developing countries and of policies aimed at supporting small farmers in rich countries.  These changes have greatly benefited multinational commodity trading and food processing companies who, in the absence of government price and supply management programs, have been able to manipulate the markets to keep prices paid to farmers low at the same time as they have kept consumer prices for food steady or rising.

The key developments and findings presented in this chapter include:

       Nearly nine years after the Uruguay Round’s Agreement on Agriculture, agricultural subsidies in developed countries have remained high while elimination of quotas and tariff cuts around the world have facilitated a dramatic increase in the dumping of commodities by trading companies.   The new market access to developing country markets gained under WTO agreements for multinational agribusiness corporations has resulted in dumped imports of commodities sold below the cost of production driving poor, subsistence farmers off their lands in record numbers.   This has resulted in major social crises in countries such as Mexico and India. As China implements WTO agriculture rules, officials estimate that 200 million farmers will be displaced. 

       This result conflicts with economic theory which states that displaced farmers will be “liberated” from lives of grinding rural poverty and employed more efficiently in other economic sectors. In country after country, displaced farmers have had little choice but to join swelling urban workforces where the oversupply of labor suppresses wages and exacerbates the existing crisis of chronic under- and unemployment in the cities of the developing world.

       A dramatic decline in farm income in developed and developing countries alike has been the norm under the WTO, causing indebtedness and foreclosures in rich countries and loss of livelihoods and hunger in poor countries.   The U.S. lost 38,310 small farms between 1995 and 2002, the era of the WTO.  During that period, U.S. net farm income fell 16% below the average annual net farm income of $43 billion in the five year period before the WTO went into effect (1990-95), versus $36.2 billion in 2002.

       Under the AoA, export prices for key U.S. crops have crashed to levels substantially below the cost of production. While the volume of food and agricultural trade has increased dramatically over the past decade, low prices mean that the value of exports has not kept up with increases in volume.  While the U.S. volume of agricultural exports grew by 16.4% during the era of the WTO between 1994-2002, the value of these exports only increased by 14.8%. A UN report found that the cost of food imports also rose substantially in all 14 developing countries that it studied between 1994-1999, and in Mexico, the price of the staple food corn tortillas has only risen since NAFTA, despite a flood of cheap corn imports into Mexico that have collapsed much of Mexico’s domestic small-scale corn production.

       The market distortions facilitated by WTO rules have restricted food access to populations in need and led to increased malnourishment and nutrition-related illnesses.   Between the pre-WTO (1990-1992) period and after (1998-2000), several regions saw the number and percentage of malnourished people increase, including Central Africa, the Near East, Central America and Oceania.   This is not the result of a lack of food but of lack of access to food, seeds and land which has led to increased calls among anti-hunger activists for changes in WTO rules to ensure food sovereignty—control of food and farming (seeds, land) by those who will eat the food—in order to guarantee access to food in these regions.

       By dramatically expanding legal definitions of what can be patented under the TRIPs Agreement, the WTO has endangered food sovereignty and security in poor countries.   In most developing countries, the majority of the population lives on the land and feeds itself by replanting saved seeds.    Yet over 150 cases have already been documented of research institutions or businesses applying for patents on naturally-occurring plants, some of which have been widely farmed for generations. After the WTO TRIPs Agreement becomes fully binding for developing countries in 2006, governments that fail to enforce patents on seeds—by pulling up crops or by forcing subsistence farmers who can not afford to do so to pay royalties—will face trade sanctions.

       The broad scope of patent protections under the TRIPs Agreement has created a serious biopiracy problem that further disadvantages farmers in the developing world. Biopiracy occurs when foreign corporations take indigenous seeds, herbs or traditional medicinal or pesticidal processes from developing countries and seek to patent them as the property of the company.   To get the patent, companies claim that they have slightly altered the plant, even if the alteration does not make any meaningful change to the plant or process.  Once a plant is patented, traditional users must pay a fee and any revenue from sales of the good goes to the patent holder, not the community from where it was stolen. Thailand has been particularly hard-hit by biopiracy, losing the rights to a traditional plant-based ulcer cure to a Japanese company, and currently struggling to protect its right to market jasmine rice against a U.S. rice product called “Jasmati.”  In the U.S., a Colorado farmer secured a patent for the common Mexican yellow bean, claiming that he had modified the bean he called the enola bean in some way. While the Mexican government has taken the unusual step of spending close to $250,000 appealing the patent in the U.S., the American patent holder has sued numerous importers, collected thousands of dollars in royalties and caused a massive and abrupt decline in Mexican production of this type of common bean.

       Like many WTO rules, the AoA does not conform to logical principles of “free” trade.   While developing countries are forced to eliminate the programs that safeguard their small farmers and their population’s food security, rich countries have been able to increase support for large agribusiness.   The 2002 U.S. farm bill, for example, increased subsidies to big farms and commodities exporters by $82.8 billion over the next ten years.  Between 1996-2000, 60% of U.S. farm subsidy payments went to the largest ten percent of producers, and while 30% of U.S. “residence” farms received subsidies in 2001, 72% of large-scale commercial farms received such payments.

These findings are illustrated through in-depth examinations of the following key cases:

       The U.S. has led a global campaign including in the WTO to force broader market access for genetically modified organisms (GMOs), in spite of opposition to GMOs in many developing nations based on the fact that the seeds are patented and thus poor farmers are forbidden to save and replant them--meaning that those most susceptible to hunger would not be able to afford to use GM seeds, even if they were proved to be safe. There is also emerging evidence of health and environmental risks that has produced deep-seated popular resistance to GMOs in many other countries.   By claiming GMOs as substantially equivalent to non-GM foods, and by sabotaging negotiations for a UN Biosafety Protocol to regulate these products, the U.S. and other major exporters of GMOs have even argued that the labeling of GMOs would be an “unfair” barrier to trade.   While GMO crops are often touted as way to reduce world hunger, such claims are attempts to favorably recast an issue that is really about large commercial interests.  Recent research has shown that there is no significant yield increase using GM crops, only increased environmental risks.

       The U.S. WTO case that forced India to overturn its laws against the patenting of seeds and adopt the TRIPs agreement.  Even though the Indian parliament initially refused to ratify the TRIPs agreement as part of the Uruguay Round, a U.S. challenge at the WTO forced that country to adopt TRIPs implementing legislation.

       The aggressive U.S. WTO threats to Thai anti-biopiracy laws and Thailand’s  pharmaceutical price control board as violations of TRIPs rules.

The WTO’s Coming to Dinner and Food Safety is Not on the Menu

The WTO’s relentless drive toward the “harmonization” of food, animal and plant regulations based on low, industry-preferred international standards endangers human health and sharply curtails the ability of elected governments to protect the health of their citizens in this critically important area.  WTO-approved standards are generally set in private-sector bodies which do not permit consumer or health interests to participate and which make decisions without complying with domestic regulatory procedures for openness, participation or balance. Even if a country’s domestic food safety law treats domestic and foreign products identically, if the policy provides greater consumer protection than the WTO-named international standard, it is presumed to be a WTO violation. WTO obligations to declare exporting nations’ meat inspection systems “equivalent” has allowed meat that does not meet U.S. safety standards to enter the U.S. market and appear in stores with USDA labels.  Meanwhile, countries’ attempts to regulate for emerging health threats (such as “Mad Cow” disease) or to regulate products whose health effects are uncertain (such as genetically modified foods and artificial hormone residues in meat), are characterized as trade barriers in the WTO. The World Health Organization has recognized the globalization of the food supply as a major threat to international public health.

Some key findings and developments presented in this chapter include:

       The volume of food imports has soared but inspection has not kept up. The rate of food inspections at the U.S. border has fallen far behind the dramatic increase in the volume of trade in food products.  In the U.S. in 1997, 75 full-time inspectors monitored 2.5 billion pounds of meat and poultry imports; by 2001, the same number of inspectors had responsibility for 3.7 billion pounds, an increase in per-inspector poundage from 91,000 to 135,000 a day.  An increasing number of pesticide residue violations were also found in foreign food imports.  In 1995, the year that the WTO went into effect, about one percent of inspected foreign and domestic food was found to have pesticide residues higher than U.S. standards.  By 2000, violations in inspected foreign foods had climbed to 3.8%, nearly five times the level of violations found in domestic foods.  The General Accounting Office (GAO) has called for stricter food safety inspection standards for foreign food, but these have been ignored because this would violate the WTO requirement of equal treatment for domestic and imported products.

       As required under WTO “equivalency determination” rules, the U.S. declared dozens of countries to have meat inspection systems “equivalent” to that of the U.S. even though the countries’ standards and performance violated U.S. law and regulation. Many nations maintain their equivalency status and this right to ship meat to the U.S. despite documented violations of U.S. policy. For instance, Argentina’s meat inspection system maintains its equivalency status despite well-documented problems that include contamination of meat with oil, hair and feces. Similarly, the Brazilian system, which allowed companies to pay meat inspectors in violation of U.S. law requiring independent government inspection, was also declared “equivalent.”  Meat imports from these nations enter the U.S. and are treated the same as domestic products including receiving an USDA label which makes them indistinguishable to the consumer.

       Time and time again, WTO tribunals have refused to permit any regulatory action based on the “Precautionary Principle.” Governments have long relied on this principle to shield their populations from uncertain risks from new or emerging products. Previous “precautionary” actions by the U.S. government to ban the morning sickness drug Thalidomide in the 1960s and to prevent the outbreak of Mad Cow disease in the 1980s and 90s helped avert the substantial human and agricultural devastation that occurred in other countries. Yet the U.S. has used the WTO to systematically attack other countries’ precautionary regulations such as those dealing with beef hormones, genetically modified organisms (GMOs), invasive species and agricultural pests.

       WTO rules require member countries to base domestic regulatory regimes on standards set by closed-door, unaccountable institutions like the Codex Alimentarius Commission (Codex) in Rome.   The conflict between Codex’s trade promotion agenda and its food safety agenda, plus the growing dominance of trade officials and food industry representatives at Codex meetings, often results in international standards that permit much higher levels of exposure and risk than U.S. policies.  For example, Codex rules fail to take into account the special impact of chemical residues on children  (as is required under U.S. law) and they also permit the use of cyclamates, which have been banned in the U.S. after they were linked to birth defects and the enhancement of the carcinogenic qualities of certain chemicals.  Codex recently approved new rules that would permit any food to be irradiated at any dose and that would further undercut governments’ ability to regulate such processes.

       Any domestic standard that provides more health protection than a WTO-approved standard is presumed to be a trade barrier, unless the higher standard is supported by extensive scientific data and analysis that clearly shows a specific and significant risk associated with the lower standard.   No country has yet been able to demonstrate the need for higher standards to the WTO’s satisfaction, despite several lengthy and costly attempts by developed countries to perform the WTO-required risk assessments on the dangers posed by artificial hormones in beef, invasive species, pest contamination of native salmon populations, and more.

       WTO rules threaten provision of product information to consumers.   WTO rules require that regulations cannot be based on descriptive characteristics of a product meaning that even labeling meat with information such as the presence of hormone residues, GMOs or perhaps even country of origin is likely to be challenged as an unfair barrier to trade.

Evidence of the effects of these rules is presented through an in-depth evaluation of several landmark food safety and plant and animal health laws, including:

       The WTO challenge by the U.S. to the EU’s popular precautionary measures banning meat produced with artificial growth hormones resulted in WTO jurisprudence that effectively forbids “zero risk” standards.  The logic of the U.S. attack provides the basis for European claims that some U.S. policies which guard against Mad Cow disease and its devastating human variation, Cruetzfeld-Jacob Disease, may violate WTO rules.

       The recent U.S. challenge to European GMO policies which are based on a claim that Europe has a burden to prove a product is dangerous following WTO risk assessment rules before it can regulate – versus a burden on industry to demonstrate safety.

       The dangerous precedent set by the repeated, yet futile, efforts of the Australian government to demonstrate to the WTO’s satisfaction that the country had identified a risk posed by identified bacteria and other pests in imported raw salmon that are not found in their native salmon stocks, and had a right to set policies to avoid this risk. In the end, several successful WTO challenges forced Australia to give up its policy.

       Threats of WTO action against a U.S. policy to combat the risk of very damaging and costly infestations of Mediterranean fruit flies brought in through Spanish citrus imports.

       The U.S.-led successful challenge to Japan’s strict import regulations that protect its apple and pear crops from devastating fire blight contamination.   Other island nations, such as New Zealand, rely on measures similar to Japan’s.

The WTO’s Controversial Dispute Settlement Procedure

With the exception of the North American Free Trade Agreement, the WTO contains the most powerful enforcement procedures of any international agreement now in force.  The remarkably broad reach of WTO rules and their implications for a wide array of domestic policies, many with only a passing connection to trade, makes the WTO’s system a particular threat because it ensures strong enforcement of inappropriately expansive and biased rules. Unlike the GATT, which required consensus to bind any country to an obligation, the WTO is unique among international agreements in that its panel rulings are automatically binding and only the unanimous consent of all WTO nations can halt their implementation, which are backed up by trade sanctions which remain in place until a WTO-illegal domestic policy is changed.

The key developments and findings presented in this chapter include:

       With only two exceptions, every health, food safety or environmental law challenged at the WTO has been declared a barrier to trade. The exceptions have been the challenge to France’s ban on asbestos and a WTO compliance panel’s determination that after losing a WTO case on the Endangered Species Act turtle protection regulations, the U.S. had weakened the law to sufficiently comply with the WTO’s orders.

       In most WTO cases, the country that launches the challenge wins.   As a result, mere threats of WTO action now cause many nations to change their policies.   The challenging country prevailed in an astonishing 75 out of 88 completed WTO cases—a success rate of 85.2%. 

       Developed countries are five times as successful in defending their laws against WTO challenges. The majority of WTO challenges have been brought by developed nations. Of the 21 rulings brought by developed countries against developing countries, 20 of them (94%) ruled against the developing country laws. Developed countries also enjoyed more success in defending their laws at the WTO. In cases where developed country laws were challenged by other developed countries, domestic laws were upheld 25.6% of the time.

       Important U.S laws ruled illegal at the WTO.   In 25 out of 30 cases brought against the U.S., the WTO has labeled as illegal policies ranging from sea turtle protections and clean air regulations to tax and antidumping policies.   The U.S. also lost two high-profile cases that it brought against EU computer tariff classifications and Japan’s film policies (the infamous Kodak case which showed how the U.S.’ Section 301 procedure was effectively gutted by the WTO).

       U.S. trade safeguard laws have been successfully challenged numerous times in the WTO.   Of the 11 completed cases against U.S. trade safeguard laws, the U.S. has won only two.  Among the WTO trade law defeats analyzed in this chapter are steel, softwood lumber, the “Byrd” law, and the 1916 Anti-Dumping Act.

       This record of U.S. trade safeguard law losses is fueling a push to expand WTO disciplines on anti-dumping, countervailing duty and Section 201 safeguard policies even as developing countries are increasingly invoking their own safeguard laws in response to volatile surges in imported goods.  During 2000, developing countries initiated roughly half of all domestic antidumping investigations reported to the WTO: Argentina launched 45, India 41, South Africa 21 and Brazil 11. At the 2001 WTO Doha Ministerial, USTR Robert Zoellick dismissed Congressional instructions not to permit the launch of new negotiations on these issues. This chapter describes the state of these talks.

       The process is closed, narrow and unbalanced.   Complaints are typically filed at the request of business interests with no opportunity for input from other interested parties.   The WTO Secretariat selects panel members from a roster formed using qualifications that ensure a bias towards the WTO’s primacy. Panelists’ identities are not disclosed and there is no requirement that they disclose conflicts of interest they might have in deciding cases.   Tribunals meet in closed sessions and proceedings are confidential unless a government voluntarily makes its submissions public.   Far from being a neutral arbiter, the singular and explicit goal of the dispute settlement process is to expand trade in goods and services. Interested non-governmental parties and even state and local governments may only submit amicus briefs if a country involved in the case agrees to include the materials in their submissions.

       What’s good for the goose, is good for the gander… When environmentalists screamed that “GATTzilla Ate Flipper” after the tuna-dolphin decision, the WTO’s corporate boosters dismissed their complaints as protectionist and misinformed.   But when the WTO ruled against the U.S. Foreign Sales Corporation (FSC) tax break, American business interests had a mid-life conversion on the WTO and criticized the process in strikingly similar terms to those previously used by civil society groups:

       “This dispute cuts to the very heart of domestic policy choices made by governments.”—Stuart Eizenstat, Deputy Secretary of the U.S. Treasury Department, September 8, 2000.

       “Once tax policy is on the table, there’s no end to what the WTO might meddle in.”—Wall Street Journal editorial, January 17, 2002.

       “For the WTO to start commenting whether U.S. tax policy is acceptable is a huge expansion of its authority. You have to ask, where does it stop?”—Daniel Mitchell, senior fellow, Heritage Foundation, September 1, 2002.

The WTO and the Developing World: Do As We Say, Not As We Did

During the Uruguay Round GATT negotiations, developing countries raised concerns about the expansive set of 17 new international commercial agreements to be enforced by a global commerce agency, the WTO.  Rich countries and the GATT Secretariat staff promised developing countries that they would experience major gains as industrialized countries lowered and eventually eliminated tariffs on such items as textiles and apparel and cut agricultural subsidies that had enabled large agribusinesses to dominate world commodity markets. Think tanks, public opinion-makers and newspapers editorials have continued to relentlessly promote this notion of developing countries being the primary beneficiaries of WTO and globalization – despite a paucity of evidence to support such contentions and a growing record proving the opposite.  After nearly nine years of the WTO, few if any of the promised economic benefits materialized for developing countries and for many, poverty has worsened. The number of people living on less than $1 a day (the World Bank’s definition of extreme poverty) has risen since the WTO went into effect.

Our main findings on the economic impact of trade liberalization in developing WTO member nations are as follows:

       WTO agreements have effectively pulled up the ladder behind the now-rich countries by banning developing countries from using the same policies that they did to develop.   From the perspective of developing countries, the Uruguay Round agreements can be viewed as effectively transforming the core components of the failed IMF economic development policy into new binding multilateral commitments which are cross-linked to export market access.   This means that for developing countries, the ability to gain market access for exports under global trade rules is now conditioned on implementing changes to domestic policy—such as new intellectual property protections and elimination of industrial policies—that undermine the ability of countries to develop.  The reality is that no country has ever developed under the conditions and terms required by WTO rules.

       Poverty has increased in the era of the WTO. Defenders of the global economic status quo often toss around the notion that the number of people living on $1 per day has declined thanks to the IMF-WTO model.   In fact that claim relies solely on China’s massive population combined with China’s impressive record of per-capita income growth.   Of course, until 2001, China was not a WTO member and indeed has grown rapidly while employing mainly policies that the WTO forbids.  If one removes China, the world’s largest economy and one that has operated outside the WTO-IMF model, the number and percentage of people living on $1 a day increased during the period of WTO.  Worse, the LDCs who are strong participants in global trade have suffered from higher rates of extreme poverty than the average.  Between 1997 and 1999, 69% of the people in nations specializing in commodity exports lived in extreme poverty, significantly higher than the average extreme poverty rate in LDCs (50%).

       The developing countries that did not adopt the “Washington Consensus” model fared better than those who did.   The dismal outcomes that this model has produced for developing countries required by IMF/ World Bank “structural adjustment” programs to adopt it suggest that these countries will derive no greater benefit from adopting it under WTO auspices.  The per-capita income growth rates of developing regions before the period of structural adjustment are higher than the growth rates after the countries implemented the IMF-WTO model.  For low and middle-income countries, per capita growth between 1980 and 2000 had fallen to half of where they were between 1960 and 1980.

       Latin America’s per-capita GDP grew by 75% between 1960-1980, but between 1980-2000 it grew by only six percent.

       Sub-Saharan Africa’s per-capita GDP grew by 36% between 1960-1980 but declined by 15% between 1980 –2000.

       Arab states’ per-capita GDP declined between 1980-2000 after it grew 175% between 1960-1980.

       South Asia, South East Asia and the Pacific all had lower per-capita GDP growth subsequent to 1980 than in the previous 20 years.   (Only in East Asia was this trend not sustained, but this is because China’s per-capita GDP quadrupled during this period prior to China joining the WTO).

       In sharp contrast, the nations that chose their own economic fortunes and policies such as China, India, Malaysia and Vietnam, had more economic success.  These countries had among the highest growth rates of the developing world over the past two decades—despite ignoring the directives of the WTO, IMF or World Bank.

       Least developed countries’ share of world trade has declined since the launch of the WTO.   The developing world’s share of world trade has not increased under the WTO as promised and in some instances—notably among least developed countries—it has declined.   The 1998 Least Developed Countries Report of UNCTAD found that the share of world exports and imports had fallen sharply in the LDCs since the Uruguay Round. The 2002 UNCTAD report found that one in three LDCs saw their exports contract between 1997-2000, even as the global economy was expanding.

       Falling commodity prices under the WTO have destroyed developing economies and increased poverty.   Nonpetroleum primary commodity prices fell by more than a quarter in the nearly nine years the WTO has been in effect and now are at historic lows.   The Uruguay Round eliminated the commodity agreements that had stabilized world prices. At the same time, tariff cuts in a range of commodities increased volume and decreased prices. Compounding the problem of lower export earnings caused by plunging commodity prices is the fact that LDCs have become net importers of food and therefore must have a steady stream of foreign exchange simply to finance the imports needed to feed the population.

       Corporate globalization has increased income inequality within and between countries. Instead of generating income convergence between rich and poor countries, as WTO proponents predicted, the corporate globalization era of the 1990s actually exacerbated the income inequality between industrial and developing countries as well as between rich and poor within countries worldwide.   According to UNCTAD, “…in almost all developing countries that have undertaken rapid trade liberalization, wage inequality has increased, most often in the context of declining industrial employment of unskilled workers and large absolute falls in their real wages, on the order of 20-30% in Latin American countries.” According to the United Nations Development Program (UNDP), the differential in per-capita incomes between the countries with the poorest 20% of the world’s population and the richest 20% is widening; by 1997, the richest 20% captured 86% of world income, with the poorest 20% capturing a mere one percent.   In 1960, the 20 richest countries had per-capita incomes 16 times greater than non-oil producing LDCs, and by 1999 the richest countries had incomes 35 times higher – doubling the income inequality.

       The harmful precedent set by the successful U.S. WTO challenge to the EU’s Caribbean banana trade policy (undertaken on behalf of Chiquita).  The fallout from this WTO ruling, which ordered the elimination of a small set-aside in the EU market for bananas from its former colonies could be seriously damaging to both the islands directly involved and to the U.S.  The end of the banana “middle-class” in the Caribbean will destabilize the economic foundation of the region, leaving thousands of people with no means of independent livelihoods.  Given the tenuous standard of living of these island nations—almost all of whom are democracies with voter turnout double the U.S. rate--the threat to the well-being of the Caribbean people is enormous.

       Developing Countries show strong opposition to opening WTO negotiations on the so called “New Issues.” The final section of this chapter includes an annex written by Third World Network Director and economist Martin Khor describing the developing country perspective on the Doha Agenda and the Cancun Ministerial. Khor explains why many developing countries and NGOs from around the world are adamant that new issues—investment, competition, procurement and trade facilitation—do not belong in the WTO, as they are not trade issues but rather seek to meddle with countries’ domestic policies and priorities.

The WTO’s Environmental Impact: First, Gattzilla Ate Flipper

In this chapter, we document a systematic pattern of WTO attacks on member nations’ vital environmental concerns and policy priorities, and the biases built into WTO rules that promote unsustainable uses of natural resources.  Over its almost nine years of operation, the WTO’s anti-environmental rhetoric has been replaced by more politic pronouncements even as it has systematically ruled against every domestic environmental policy that has been challenged and eviscerated exceptions that might have been used to safeguard such laws. Instead of seeking to resolve conflicts between commercial and environmental goals, the WTO’s largely ineffectual Committee on Trade and the Environment has become a venue mainly for identifying green policies that violate WTO rules.

Key findings and developments covered in this chapter include:

       To date, all GATT/ WTO dispute panel decisions on environmental laws have required that the challenged domestic laws and measures be weakened—even when the challenged policy treats domestic and foreign goods the same, or when it implements a country’s obligations under a Multilateral Environmental Agreement (e.g., the Endangered Species Act regulations implementing the Convention on International Trade in Endangered Species (CITES), as described below). The only partial exception to this trend is that a WTO compliance panel decided the U.S. had weakened its sea turtle protections enough to meet WTO rules after losing a challenge and thus did not have to further weaken them.

       WTO rules have consistently been interpreted to mean that products cannot be treated differently according to how they were produced or harvested. This interpretation—for which there is no legal basis in the actual rules—requires, for example, that clear-cut tropical timber cannot be treated differently from sustainably-harvested timber, that fish caught with “curtain of death” drift nets cannot be distinguished from sustainably-caught fish, and that products made using slave labor or involving extreme cruelty toward animals must be given the same trade treatment as products made under more humane and ethical conditions.

       Across-the-board WTO reductions in tariffs on natural resources and biased WTO “tariff escalation” have increased unsustainable “rip and ship” policies. WTO cuts in tariffs for a variety of natural resource products have resulted in growing pressure on these resources.   The value of global mining exports, for example, rose by 55% between 1995 and 2001, even though most mining commodity prices declined. U.S. imports of fish and fish products grew by 23% across the same period.  Imports of fresh or chilled fish fillets rose to 281% of their 1995 level by 2002. The escalation built into WTO tariff schedules pushes developing countries to concentrate on trade in raw materials.  For example, rough tropical timber comes into the U.S. duty-free but plywood veneered with tropical wood has a tariff of eight percent and almost all furniture above a limiting quota receives a 40% tariff. U.S. imports of raw logs more than doubled between 1995 and 2002. Tariff escalation also diverts developing countries from developing more sustainable value-added industries.

Because WTO panels have systematically ruled against challenged environmental policies, now mere threats of challenges often suffice.  The exceptions to WTO rules (contained in GATT’s “Article XX”), which might have allowed some domestic policies which otherwise violate WTO rules, also have been repeatedly ruled to be inapplicable in a series of WTO rulings:

       Case 1: U.S. weakens the Clean Air Act to comply with WTO ruling.  The U.S. implemented the WTO ruling by replacing U.S. gasoline cleanliness regulations with a policy that the U.S. government previously had estimated would produce a five percent to seven percent increase in annual emissions of nitrous oxide from imported gasoline.

       Case 2: U.S. dolphin protection laws undermined. After years of sustained trade law challenges, the Bush administration decided to quietly implement a change to a “dolphin safe” labeling policy which Mexico had demanded as necessary to implement a GATT ruling. (Mexico had threatened a new WTO case if their demands were not met). On   New Years Eve 2002, when few Americans were focused on policy matters, the Bush administration announced that it would change the “Flipper-friendly” tuna policy to allow the “dolphin-safe” label to be used on tuna caught using deadly purse seine nets and dolphin encirclement. This regulation is now being challenged in federal court.

       Case 3: U.S. weakens sea turtle protections in the U.S. Endangered Species Act. When the WTO ruled against U.S. Endangered Species Act rules protecting sea turtles from getting killed in shrimpers’ nets, the U.S. complied with the WTO order by replacing the requirement that all countries seeking to sell shrimp in the U.S. had to ensure that their shrimpers used turtle exclusion devices. The new policy is based on an unenforceable rule that allows into the U.S. all shrimp carried by any ship with turtle protection technology, regardless of whether the ship had actually caught the shrimp.

       Threat 1: Hong Kong’s WTO complaint against U.S. anti-invasive species rules.  U.S. regulatory efforts to fight the costly infestation of the Asian Longhorned Beetle (which is devastating maple and other trees throughout the U.S.) were threatened as violating WTO rules—to the extent that the USDA is now considering watering down regulations requiring treatment of raw wood packing material to comply with a weaker, WTO-sanctioned “international” standard.

       Threat 2: WTO threats undermine EU ban on cruelly trapped fur.   The threat of a WTO challenge by the U.S. and Canada convinced the EU to effectively abandon a policy passed by the European Parliament to ban the sale of furs—including imported fur—caught with steel jaw leg traps. The policy would have only permitted certain animal furs from countries with a ban on steel jaw leg traps to enter the European market.  The threat of a WTO challenge eventually convinced the EU to effectively abandon the law.

       Threat 3: WTO threats against Japan’s fulfillment of its obligations under the Kyoto Protocol. Japan’s new automobile engine efficiency and emissions policies aimed at meeting its obligations under the Kyoto Protocol have faced a WTO threat by the U.S. and EU.

       New threats: The U.S. is currently considering a challenge to a proposed EU chemicals policy called REACH (Registration Evaluation and Authorization of Chemicals).  At the U.S. chemical industry's behest, in April of 2003, the U.S. State Department sent a demarche characterizing this EU proposal as an "obstacle to trade" which will "distort global markets." REACH would place responsibility on chemicals manufacturers (both domestic and foreign) for testing thousands of older chemical products for toxicity.  Globally, there are over 85,000 chemicals in the international stream of commerce, however, less than ten percent of these chemicals actually have toxicity data describing the health and environmental consequences of their usage.  Since a demarche often proceeds an official U.S. trade challenge, many commentators have characterized this issue as the next big transatlantic trade battle.

WHERE HAS ALL THE GROWTH GONE???

There has been a stead growth in productivity:  Over 3fold since 1950, yet our disposable income in constant dollars is far less.  Family income has grown because the wife has joined the labor market.  Where has it all the wealth created from increased productivity gone?   Much of this increase has been gobbled up by the stock market including dividends, increase in the service sector, and government.  Rather than distribute the fruit from the incresed productivity, big business has reduced the share workers earn from what they produce.  Much has gone in the shifting burden:  the tax rate for corporations has is less than half what it was 50 years ago.  Tax cuts for the riches 2%, who in addition has seen their income dramatically rise.  There is only one pie, the GDP, what has changed is the way it is distributed.  Without a strong labor movement which garners political support, the current trend will continue. 

In the classic Monopoly Capital, Baran and Sweezy point out that the greatest return on investment is in the setting up production in other countries; thus another drain, domestic profits invested outside our borders.  The casuistry university economists favoring neoliberalism, the policies of international banking & trade organizations (IMF & WTO), and the support neoliberalism gains from government and the media don’t change the underlying drive for maximization of profits before all else--jk.