Is the World Trade Organization unjust?

The World Trade Organization (WTO) is a contested international trade regime. Among other things, it has been accused of favouring large multinational companies and letting developed countries protect their farming products at the expense of developing countries. Presenting the main points of critique directed at the WTO, GLOBUS researchers Johanne Døhlie Saltnes and Kjartan Koch Mikalsen argue that the criticism provides evidence of persisting relations of dominance.

WTO protests
The World Trade Organization enables continued relations of dominance, the authors argue. Photo: Korean farmers protest against WTO at the 2005 Ministerial Conference in Hong Kong. (Flickr)

Dominance and two merits of the WTO

To be dominated is to live at the mercy of others. It is to be subjected to arbitrary power and to be dependent on particular others. Relations of dominance are fundamentally unjust, and justice requires us to put an end to arbitrary forms of power. Identifying relations of dominance is therefore important as a first step towards formulating solutions as to how injustices can be overcome.

Avoiding dominance is often linked to citizenship. Membership in a state involves recourse to a legal system that restrain the powerful. Yet states do not exist in a vacuum. There are other powerful agents, such as other states, multinationals, and international public bodies, all of which are potential dominators in relation to one’s own state. Accordingly, there is a need for forms of cooperation among states that makes each state less susceptible to dominance. There might even be good reason to call for reforms that go beyond amendments to an international system of sovereign states. Arguably, combatting dominance requires stronger supranational institutions because of globalisation and increased interdependence between states.

To some extent, the WTO seems to conform to the demand for non-dominance beyond the state.

At least to some extent, the WTO, which regulates global trade between 164 members, including the European Union and all of its member states, seems to conform to the demand for non-dominance beyond the state. For one thing, the basic principle underpinning the WTO is non-discrimination. Any preference granted to one member must be granted to all other members of the WTO. Further, the WTO’s dispute settlement mechanism ensures that the agreements are enforced and trade disputes can be settled. If common ground is not found, sanctions are allowed.

Both features speak to the merit of the WTO, as they potentially reduce member states’ vulnerability to dominance. The principle of non-discrimination and the dispute settlement mechanism are commendable elements of an international trade regime, as they safeguard states against arbitrary treatment by other states. At the same time, the WTO has met harsh criticism. In the following, we present some of this criticism, which suggests that the current WTO regime in various ways foster dominance relations.

Lack of differentiation

An important point of this critique relates to the fact that the WTO sets the same requirements for developed and developing countries. With the exception of the Least Developed Countries (LDCs), all countries have to comply with the same trade-liberalisation standards. Hence, whereas the developed countries were able to use trade protection instruments at the time they were developing, today’s developing countries are not granted the same opportunity.

It might not always be enough to treat everyone equally.

The problem with this undifferentiated approach can be brought into focus if we consider that formal justice can lead to unfair results. Even if institutionalised procedures are formally just, lack of sensitivity to the particular circumstances of different states and peoples may cause unintended structural injustices and dominance. It might not always be enough to treat everyone equally.

To avoid inequities, there is sometimes a need for differentiated treatment. For instance, developing countries – many of which have large pockets of poverty similar to the LDCs – arguably need trade protection measures in order to diversify to new sectors and industries. Denying them the option of such measures is likely to perpetuate their dependence on developed countries.

The 'Doha round' was launched in 2001 with the objective of improving trading prospects for developing countries. But the negiotiations have been at a standstill since 2008. (Photo: WTO

Lack of differentiation is the central point of contestation between WTO members in the on-going round of negotiations of a major reform of the global trading regime. The ‘Doha round’ was launched in 2001 with the objective of improving trading prospects for developing countries. One way of achieving this would be to increase the possibility of using ‘special and differential treatment’ provisions, a central claim from developing countries.

If the WTO successfully managed to agree on giving developing countries preferential provisions, it would be a substantial improvement. The prospects of achieving a new agreement are however at an all-time low; the negotiations have been at a standstill since 2008.

Unequal benefits from export subsidies

Another line of criticism concerns the lack of restrictions on trade instruments that favours developed countries. A seminal example is export subsidies, an instrument that has enabled rich countries to dominate poor countries by supporting its own export industries. Developed countries can use state capital to subsidise their own export products in order to compete with countries providing the same product at a lower price.

Subsidies for agricultural products and cotton receive especially fierce critique for inhibiting poorer countries’ ability to exploit their potential as exporters of these products. The fact that poorer countries often rely on the export of only a few products, and therefore is more vulnerable to the effects of such subsidies than the developed countries, reinforces the problem.

A small step forward towards a non-dominating international trade regime was made in 2015, when WTO members agreed to abolish export subsidies. 

Therefore, even if non-discrimination under WTO has some merit in terms of non-dominance, the lack of constraints on export subsidies are condemnable on the very same terms. Rather than shielding states against arbitrary power, it exposes developing countries to the arbitrariness of developed countries. Here, the problem is not a lack of differentiation, but the lack of a generally binding prohibition against certain practices that only wealthy states have the opportunity to benefit from.

tractor bavaria
The EU's Common Agricultural Policy continues to subsidise European agricultural markets at the expense of developing countries. (Illustration: Agriculture in Bavaria, pixabay

Accordingly, a small step forward towards a non-dominating international trade regime was made in 2015, when WTO members agreed to abolish export subsidies. Yet many challenges remain. The EU’s well-known Common Agricultural Policy continues to subsidise European agricultural markets at the expense of exports from developing countries.

Cost thresholds favour large multinational companies

Critics also argue that the WTO has created international trade relations benefitting large multinational companies to the disadvantage of local industries and firms. Small and medium enterprises are responsible for the largest share of employment opportunities in most countries, but trade obstacles such as tariffs, costly border procedures and other non-tariff barriers place a larger burden on small and medium enterprises than on bigger multinational firms. Although the costs of trade in principle are the same for all, the entrance ticket to the market is substantially easier to pay for multinationals.

Multinational companies have been able to tap into markets in poor countries, and even secured patent rights to natural resources.

Competition on such terms is problematic since it makes most countries vulnerable to the arbitrary power of large companies. As always, the poorest countries face the biggest problems. Multinational companies have been able to tap into markets in poor countries, and in some instances even secured patent rights to natural resources.

The so-called 'banana wars' highlighted how the WTO favoured large multinational companies at the expense of small producers (photo: Pete Linforth, pixabay)
The so-called 'banana wars' highlighted how the WTO favoured large multinational companies at the expense of small producers.

One example of how WTO trading rules have favoured multinational companies is the high-profile ‘banana wars’ between the EU and several Latin American countries. In 1993, the EU established an import regime that allowed bananas from ACP-countries (Africa, Caribbean and Pacific) to enter the EU market on a largely duty-free basis. These preferences allowed relatively inefficient and small ACP banana producers to compete on the international market. The same preferences were not granted to the ACP’s biggest competitors, bananas produced mostly by big US multinational companies in a number of Latin-American countries (Dole, Chiquita). The US and the relevant Latin American countries together challenged the trade benefits before the WTO.

The ‘banana wars’ lasted two decades before the EU and its counterparts in 2009 agreed that the EU would gradually reduce tariffs on Latin American bananas. Although the WTO rules in this case enabled a number of developing countries to change the EU’s policy, the result favoured large multinational companies at the expense of small producers.

A just international trade regime?

Although certain achievements should be acknowledged, there are good reasons to contest the WTOs merits in regulating global trade in a just way. Its lack of differentiation between developed and developing countries, its former lack of prohibition against export subsidies, and the favouring of multinationals in decisive ways enable continued relations of dominance.

We could also broaden the critique considerably compared to what we have discussed here. For instance, the lack of non-economic considerations related to environmental protection is another deficit that has to be addressed. The consequences of environmental deprivation are likely to harm the global poor the most, which in turn will deepen their dependence on the affluent.

The current international trade regime fails profoundly to protect against arbitrary power.

None of this is to say that we would be better off without the WTO, but the severe criticism of the current international trade regime suggests that it fails profoundly to protect against arbitrary power. Despite some progress, the way towards a just and non-dominating system of global trade still seems long and full of hurdles.

About the authors

Johanne Saltnes

Johanne Døhlie Saltnes

Researcher, ARENA Centre for European Studies, University of Oslo

 

 

Kjartan Kock Mikalsen

Kjartan Koch Mikalsen

Associate Professor, Nord University and Guest Researcher, ARENA Centre for European Studies, University of Oslo

Tags: Trade and development, EU and global justice By Johanne Døhlie Saltnes, Kjartan Koch Mikalsen
Published Feb. 20, 2017 3:21 PM - Last modified Feb. 19, 2019 10:59 AM
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