WTO Law

WORLD TRADE ORGANIZATION LAW
"The exception confirms the rule in cases not excepted" (Cicero)

The WTO (World Trade Organization) is an international organization dedicated to improving the welfare of its 153-nation membership by lowering trade barriers and liberalizing international trade. Lowering trade barriers helps lessen global poverty, and the liberalization of trade involves the expansion of commerce. Trade is just another name for commerce (i.e., the exchange of goods, services, or both). International trade (i.e., cross-border trade) commonly involves a global division of labor where different countries specialize in the making of different pieces or components of a product. Trade in finished goods also takes place (via import/export of non-intermediate goods), but modern trade law recognizes that some countries have a comparative advantage in producing what they produce best. This idea that each country will eventually come to specialize in what it does best is the comparative advantage theory developed by the famous economist David Ricardo (1772-1823), and it is also associated with the idea of free enterprise (or free markets) which is (are) supposed to create lower prices and higher wages for all. In this sense, the WTO is the world's only organization dedicated to social justice as that notion is associated with the idea of economic egalitarianism (equality of outcome) and the absolute human natural right to a living wage. In another sense, the WTO represents a synthesis or unity of all the moral founding principles behind all forms of government -- capitalism, socialism, and communism. This makes it a quite interesting organization to study.

Let's start with comparative advantage theory. Like a product assembled in the U.S. but with parts made in twenty different countries, comparative advantage is what people usually think of when they consider economic "globalization" (and they are largely correct in this perception). If globalization continues on its present course, what will happen one day is a gradual integration of national economies into one borderless global economy. The anti-globalization alternatives are autarky (closed economies, as in North Korea) or some modern form of mercantilism such as protectionism -- neither of which maintain healthy economies which serve the public interest (Samuelson & Nordhaus 2004). The reasons for this are that trade restrictions result in the underproduction of public (shareable) goods and they also create revolutionary tensions in societies. Protectionism has been called one of the main causes of war (recalling that the American Revolution was over tariffs). Today's public manager must ensure not only a healthy economy, but one which serves the public interest, and increasingly serves the global public interest (Stiglitz 1986; 2006).

The WTO got started in 1995 and before that was known as GATT (General Agreement on Tariffs and Trade) which was created in 1947 as an outcome of the Bretton Woods Conference held by forty-five nations during WWII. The Bretton Woods Conference also created the IMF (International Monetary Fund) and World Bank, and together, all three Bretton Woods institutions (the IMF, World Bank, and WTO) were designed to rebuild the world's economic system after that devastating world war which brought about fears of hyperinflation (the worst economic evil, and caused by deficit financing through overprinting of money). The Bretton Woods Conference sought an end to all that, as well as a number of other bad practices.

The Bretton Woods Conference

At the Mount Washington Hotel (pictured at right) in Bretton Woods, New Hampshire, during July, 1944, 730 delegates from 44 Allied nations came together to plan for post-war reconstruction and ended up deciding to create permanent international bodies to outlaw economic practices which would be harmful to world prosperity such as the tendency for nations, on their own, to create trade blocs and economic "spheres of influence" which cause depressions and buildups of war machines (Ostry 1997).

After WWII, the world relied upon a gold standard, which served well up to 1971 when the world went on a new type of fiat currency system, which meant that each nation would henceforth guarantee the value of its currency either thru a central bank (in the US, the Federal Reserve) or the power of taxation (backed by military force, if necessary). The word "fiat" means what a government declares or orders to be its "legal tender" (what cannot be refused by law). Few nations "run the presses" anymore these days (print money to keep up with inflation or deficit spending) because the "legal tender" custom keep nations concerned about the basic value of their smallest denomination. Most nations simply "revalue" their currency modestly to adjust for inflation, and such adjustments keep currency stable and relieve nations from the burden of having to print large denominations. If the basic value of currency is stable, deficit spending can be easily managed by holding back some of printed currency from circulation (called a reserve), and many nations borrow against that reserve on the basis of its fiat (declared) value on the open market (what risk speculators are willing to take on it). How well a nation saves and invests (i.e., "manages") its currency with respect to how other countries do it determines the "exchange rate" (the equivalence of one nation's currency to another's), and the WTO has the power to affect this rate. Governments today also rely heavily upon other methods of deficit financing which keep their currencies solid, as explained below by two important concepts in monetary policy:

Reserves are also involved in the calculation of a nation's balance of payments, which is the most comprehensive term describing all international transactions for a country during a specific time period. The IMF will monitor whether a country is buying its own currency for purposes of selling it at a favorable exchange rate at the expense of another nation's currency OR whether the purchase of foreign currency is intended to improve the domestic money supply (which is sound monetary policy). Abuses of the currency system are more prevalent among countries on a fixed exchange rate (fixed or pegged to the currency of a low-inflation country or some average price or rate) rather than a floating exchange rate (a rate with a ceiling and floor but still subject to market fluctuations). Several developing countries fear "floating" their currency because it makes their balance sheets look bad, but it is generally preferable they do so to avoid the shocks of business cycles and regional currency crises [see List of Countries with Fixed Exchange Rates]. Among other things, the balance of payments will shed light on the balance of trade which tells whether a nation has a trade deficit or trade surplus. An excess of exports over imports is a trade surplus, and an excess of imports over exports is a trade deficit. Most developed nations run a trade surplus, but the United States has consistently run a trade deficit for many years. Economists are divided over how dangerous it is for the U.S. to consistently run a trade deficit, with Bhagwati (2008) saying it's dangerous, and the Friedmans (1980) arguing it's nothing to worry about -- that a trade deficit simply means consumers have more opportunities to purchase and enjoy more goods at lower prices. However, running a trade surplus usually means people of a nation have more personal savings. International trade is thus tied up with how "consumerist" a society is; i.e., whether people are thrifty or spendthrifts.

WTO law is intricately connected in profound ways with global capitalism, international law, international economic law, and international justice. It draws upon an immense variety of sources, principally the Marrakesh Agreement, customary international law, general principles of law, other international agreements, the opinions of highly qualified academics, and the history of dispute settlements and negotiations by the WTO itself. The WTO is so important in today's globalized world that it is impossible to neglect it whether one is talking about the "sovereign" responsibilities of nations, the conduct of private parties involved in cross-border business transactions, or the jurisprudential implications of WTO dispute settlement procedures. According to Bossche (2005), there are four reasons why the WTO is necessary:

WTO law deals with a broad spectrum of issues; however, six general groups of basic rules and principles can be distinguished, which are then explained in turn:

    (1) the principle of non-discrimination
    (2) the rules on market access
    (3) the rules on unfair trade
    (4) the rules on trade liberalization and other societal values
    (5) the rules on special treatment for developing countries
    (6) the procedural rules on decision-making and dispute resolution

    The Principle of Non-Discrimination: This principle consists of two rules: (a) the most-favored nation (MFN) treatment obligation; and (b) the national treatment obligation. The MFN rule is the single most important rule in WTO law, and it requires any nation which grants favorable treatment to one nation to grant that same favorable treatment to all other WTO members. The national treatment obligation requires the treatment of any foreign product or service no less favorably than "like" domestic products or services.
    The Rules on Market Access: WTO members cannot impose customs duties (i.e. tariffs) on products that exceed the maximum level of duty agreed to. Also, they cannot ban the import/export of goods or subject them to quota unless a mutually-agreed restriction is in place. All such rules, regulations, and agreements should be prominently made public (i.e. transparent) so that all may know them.
    The Rules on Unfair Trade: Dumping is condemned; and consists of bringing a product onto the market of another country at a price less than the normal value of that product. Also, subsidies are subject to rules. Export subsidies, as a rule, are prohibited, and other subsidies which cause adverse effects to other members may trigger WTO countermeasures.
    The Rules on Trade Liberalization and Societal Values: WTO members are allowed to take account of non-economic (societal) values and interests when establishing free trade agreements. For example, members can consider issues of environmental protection, public health, public morals, national treasures, and national security.
    The Rules on Special Treatment for Developing Countries: WTO members should take the special needs of developing countries into account.
    The Procedural Rules on Decision-Making and Dispute Resolution: Normal procedures shall involve the WTO conducting decision-making by consensus, and where a decision cannot be arrived at, the matter shall be decided by vote, each member of the WTO having one vote. Special procedures shall involve decision-making by the Dispute Settlement Body (DSB).

Cassese (1989) is typical of the ambivalence expressed by international law scholars over how WTO law is related to international law and/or the domestic law of any individual nation. International law is normally all about the independence (and sovereignty) of individual nations, and WTO law is all about the interdependence of nations. WTO law is all about dispute resolution where the relative absence of a win-lose scenario may frustrate lawyers trained to win in litigation. WTO law is an integral part of international law, and the most amazing thing about that is the fact that DSB dispute resolution rulings are binding as precedent under international law (even the negotiating histories are valid). Whether or not international lawyers pay any attention to such rulings is problematic because chances are they don't since international economic law is such a subspeciality. Pauwelyn (2003) argues that lawyers ignore WTO law at their peril since there are a vast number of important contributions relating to matters of due process, intellectual property, immigration, corporate investment, cross-border provision of services, public health, and national security, to name a few.

WTO law even has implications for domestic law by affecting the concept of national sovereignty (Kennedy & Southwick 2002; Jackson 2006). In short, it redefines what sovereignty means from an evolutionary point of view. Thus, Shan, Simons & Singh (2008) can write that the concept no longer refers to non-interference from other nations, but instead refers to a kind of "cooperation" or "coordination" necessary from states as interconnected institutions in an increasingly interconnected world. Bossche (2005) points out, however, that, aside from sanctions that the WTO can impose on specific nations, a treaty-consistent interpretation is usually followed which weakens the force of WTO law for domestic consumption. The fact of the matter remains that WTO law is international law, and WTO law can NOT be challenged in domestic courts (Bossche 2005:74). Nations found in violation of WTO law are given a reasonable amount of time to come back into compliance, or otherwise they risk prosecution in the International Court of Justice. To the average observer, the WTO may seem like some specialized institution which deals with things like dolphin-safe tuna fishing or hormone-treated beef, but the legal reasoning behind settlements in those cases will have enormous implications one day. WTO law is the "new frontier" and what happens there will shape what the world looks like tomorrow.

PRINTED RESOURCES
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Jackson, J. (2006). Sovereignty, the WTO and changing fundamentals of international law. NY: Cambridge Univ. Press.
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Pauwelyn, J. (2003). Conflict of norms in public international law: How WTO law relates to other norms of international law. NY: Cambridge Univ. Press.
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Shan, W., Simons, P. & Singh, D. (2008). Redefining sovereignty in international economic law. Worcester Place, UK: Hart Publishing.
Stiglitz, J. (1986). Economies of the public sector. NY: Norton.
Stiglitz, J. (2006). "Global public goods and global finance: Does global governance ensure that the global public interest is served?" Pp. 149-164 in Cournot Centre & J-P Touffut (eds.) Advancing Public Goods. Williston, VT: Edward Elgar Publishing. [available online]

Last updated: Sept. 04, 2010
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