The International Economics
Study Center


 

Chapter 1
The WTO: An Historical, Legal,
and Organizational Overview

 

HISTORICAL OVERVIEW OF THE GATT

Post-World War II Negotiations

The wartime discussions which laid the groundwork for the 1946-48 GATT/ITO negotiations were largely an American and British effort. The discussions began with an exchange of views in Washington in September and October of 1943. For the most part, the experts found themselves in complete agreement on particular issues of substantive policy. They canvassed most of the leading problems including quantitative restrictions, subsidies, export taxes, state trading, discrimination, and tariff reduction. On each point, the answers seemed fairly clear. Quantitative restrictions, more commonly known as quotas, were to be prohibited, the only exception being those used to deal with balance of payments emergencies. Export taxes and export subsidies were to be eliminated. State trading enterprises were to be encouraged to behave like private traders. Discrimination had to be outlawed, and tariffs had to be reduced substantially. Throughout 1945, formal government to government conversations continued. In December of that year, the American and British governments produced a detailed set of "proposals" on which the negotiations for an International Trade Organization (ITO) could be based. At the same time, the United States issued a preliminary invitation to fifteen other countries to take part in a bilateral/multilateral negotiation for the reduction of tariffs and other barriers to trade. Three more countries were added to the list, making the participants in the coming tariff negotiations identical to the members of the Preparatory Committee for the Havana Conference to establish the ITO. The proposals were accepted by the United Nations Economic and Social Council in early 1946 and a "United Nations Conference on Trade and Employment" officially convened. A Preparatory Committee, consisting of the eighteen key governments, was appointed to prepare a draft charter for consideration by the Plenary Conference. At the end of the first session of the Preparatory Committee, held in London, the United States extended a formal invitation to the other seventy members of the Committee to meet to negotiate a concrete arrangement for the relaxation of tariff and trade barriers of all kinds.

In the Geneva Session held in 1947, the members of the Preparatory Committee had two tasks before them: to work out a draft charter for consideration and decision by the Havana Conference, and to organize the tariff negotiations and revise the Draft Agreement on Tariffs and Trade. The tariff negotiations started in April 1947 and on October 30th of that year, the General Agreement on Tariffs and Trade (GATT) was signed by "contracting parties" of twenty-three countries. For eight countries (Australia, Belgium, Canada, France, Luxembourg, the Netherlands, the United Kingdom and the United States), the Agreement went into effect on January 1, 1948. In the following months, the remaining countries ratified the Agreement. At the same time, signatory countries were drawing up the "Havana Charter" for the proposed ITO.

The Havana Charter was a comprehensive code governing the conduct of world trade. It contained both general statements of principle and specific commitments of national policy dealing primarily with national barriers to trade. It covered all types of restrictions on trade, for example tariffs, preferences, internal taxation and regulation (such as quotas and related exchange matters), labor and employment, economic development and reconstruction, subsidies, state trading and related matters, general commercial provisions on freedom of transit, antidumping and countervailing duties, special provisions for free trade areas and customs unions, restrictive business practices, and intergovernmental commodity agreements. The GATT was largely based on parts of the Havana Charter. It had the limited purpose of cutting tariffs as a bridging measure pending approval of the Charter. It was to be effected with minimal institutional arrangements because responsibility for trade liberalization was expected to be assumed shortly by the ITO. Plans for the ITO were abandoned, however, when it became clear that the Havana Charter would not be ratified by the U.S. Senate. The GATT was consequently a treaty without a planned administrative organization, and which covered only part of its originally intended scope.

Principles of the GATT

The GATT functions according to the following four fundamental principles:

1.) Most-Favored-Nation Treatment (MFN): One of the key provisions of the GATT outlawed discrimination among members and between imported and domestically produced merchandise. According to Article I, the famous "most favored nation clause," members are bound to grant to the products of other members, treatment no less favorable than that accorded to the products of any other nation.(1) Thus, no country is to give special trading advantages to another or to discriminate against it. All are one and on an equal basis, and all share the benefits of any moves towards lower trade barriers. There are a number of exceptions to Article I, notably that covering customs unions and free trade areas. However, MFN treatment generally ensures that developing countries and others with little economic leverage are able to benefit freely from the best trading conditions wherever and whenever they are negotiated.

2.) National Treatment Principle: This is Article III of the GATT and requires that once goods have entered a market, they must be treated no less favorably than the equivalent domestically produced goods.

3.) Anti-Non-Tariff Barriers Principle: This principle states that, where protection is given to domestic industry, it should be extended exclusively (subject to very limited exceptions) through customs tariffs and not through other commercial measures. Among other things, the aim of this rule is to make the extent of protection clear and quantifiable. Fees and charges other than tariffs must be limited to the approximate cost of the services. Treatment given to marks of origin must not be discriminatory and should be consistent with protection of the consumer. The "Escape Clause" exception permits the imposition of tariffs and non-tariff barriers in cases where, as a result of unforeseen developments, a product is imported into the territory of a contracting party of like or directly competing with a domestic product in such increased quantities and under conditions which causes harm or threatens serious injury to domestic producers. These may be imposed only to the extent and for such a time as is necessary to prevent or remedy the injury. Exceptions also exist for national security, public morals, short supply or domestic price stabilization, health, and other valid public policy reasons.

4.) Tariff Concession Principle: Under standard GATT operating practice, a country wishing to become a contracting party to the Agreement must submit negotiated tariff concession schedules (including lists of non-GATT complying non-tariff trade restrictions). These are sometimes referred to as "bindings." They may include schedules of tariff reductions or the elimination of specified non-tariff trade restrictions. These tariff concession schedules are negotiated with other members collectively. They constitute the "high water" mark for that country for its tariffs and non-tariff trade restrictions as long as it remains a member. Thereafter, tariffs and other trade restrictions may only (with certain exceptions that invite retaliatory action by other members) be reduced or eliminated through scheduled, unilateral, or mutually negotiated further trade liberalization. They may not be increased.

Structure of the GATT

The highest body of the GATT was the Session of Contracting Parties which met annually. GATT decisions were usually arrived at by consensus, not by vote. When voting took place, each member country had one vote and decisions were by a simple majority. Two-thirds of the votes cast, with the majority comprising more than half the member countries, were needed for "waivers" (authorizations, in particular cases, to depart from specific obligations under GATT). Between sessions of the contracting parties, the Council of Representatives, made up of representatives of all members and referred to as "the GATT Council," was authorized to act on both routine and urgent matters. It usually met once a month. Major GATT standing committees or councils were the Committee on Trade and Development, concerned with issues of special interest to developing countries, the Textiles Committee, made up of the Multilateral Fiber Agreement (MFA) signatories, and committees concerned with the Tokyo Round agreements. Ad hoc committees dealt with specific transitory questions, such as requests for accession to the GATT, verification that agreements concluded by members conformed to the GATT, or the study of issues on which members might later make a joint decision. Panels of Conciliation were often convened to investigate disputes between particular members.

The GATT Secretariat was headquartered in Geneva, Switzerland and constituted the administrative body of the GATT. Headed by an Executive Secretary, the Secretariat was a clearinghouse for the work of contracting parties and was well placed to play an active part in international commercial policy decisions. Also, it collected statistics as well as evidence of regulation hindering or helping international trade and made it available as a background material to the contracting parties. Much of the evidence collected has become available for the first time on a worldwide basis. The role of the Secretariat, both as catalyst and as an initiator of policies, was thus undoubtedly large.

GATT Trade Rounds

Although in its forty-seven years the basic legal text of the GATT remained much as it was in 1948, there were additions in the form of plurilateral, voluntary membership agreements in a continual effort to reduce tariffs. Much of this was achieved through a series of eight "trade rounds." These negotiating rounds were:

    • First Round: Geneva, Switzerland, 1947
    • Second Round: Annecy, France, 1949
    • Third Round: Torquay, England, 1951
    • Fourth Round: Geneva, Switzerland, 1956
    • Fifth Round: The Dillon Round, 1960-61
    • Sixth Round: The Kennedy Round, 1964-67
    • Seventh Round: The Tokyo Round, 1973-79
    • Eighth Round: The Uruguay Round, 1986-1994

 

Most of the early GATT Rounds were devoted to continuing the process of reducing tariffs. With 120 participating countries, the Tokyo Round produced, in addition to important tariff reductions, a series of agreements on non-tariff barriers, in some cases interpreting existing GATT rules and in others breaking entirely new ground. The agreements coming out of the Tokyo Round included: Subsidies and Countervailing Measures, Technical Barriers to Trade, Import Licensing Procedures, Customs Valuation, Anti-dumping, Government Procurement, Bovine Meat Arrangement, and Trade in Civil Aircraft. Only the first five were binding on all members, while the others remain plurilateral agreements.

A new negotiating round, called the Uruguay Round, was announced in September 1986. It was the most ambitious trade negotiation ever held. The ministers were able to accept a negotiation agenda which covered virtually every outstanding trade policy issue, including the extension of the trading system into several new areas, notably trade in services and intellectual property. Traditionally, the GATT had only covered trade in goods. It was the biggest negotiation mandate on trade ever agreed, and the ministers gave themselves four years to complete it. By 1988 the negotiation had reached the stage of "Mid-term-Review." This took the form of a Ministerial Meeting in Montreal, Canada, and led to the elaboration of the negotiating mandate for the second stage of the Round. Ministers agreed to a package of early results which included concessions on market access for tropical products (aimed to assist developing countries), a streamlined Dispute Settlement system, and a Trade Policy Review Mechanism (TPRM), which provided the first comprehensive, systematic, and regular reviews of national trade policies and practices of members.

At the Ministerial Meeting in Brussels in December 1990, disagreement on the nature of commitment to future agricultural trade reform led to a decision to extend the Round. By December 1990, a comprehensive draft text of the "Final Act," containing legal text fulfilling every part of the Punta del Este mandate, with the exception of market access results, was on the table in Geneva. For the following two years, the negotiations lurched continuously from impending failure to predictions of imminent success. Several deadlines came and went; farm trade was joined by services, market access, anti-dumping rules, and the proposed creation of a new institution as major points of conflict. Differences between the United States and European Community became central to the hope for a final, successful conclusion. It took until December 15, 1993 for every issue to be resolved and for negotiations on market access for goods and services to be concluded. On April 15, 1994 the deal was signed by ministers from most of the 125 participating governments at a meeting in Marrakesh, Morocco. Despite its provisional nature, the GATT remained the only multilateral instrument governing international trade from 1948 until the Marrakesh agreement established the World Trade Organization in 1994.

How the WTO Differs From the GATT

Whereas the GATT was a provisional, multilateral agreement negotiated by its contracting parties but never ratified by their parliaments, the WTO is a formal international institution. It joined the ranks of the World Bank and International Monetary Fund (IMF) when it came into being as of January 1, 1995 as the embodiment of the Uruguay Round of GATT trade negotiations.(2) The Agreement Establishing the WTO was ratified by member governments and stipulates rules according to which the organization functions.

Charged with providing "the common institutional framework for the conduct of trade relations among its members in matters related to the agreements and associated legal instruments included in the Annexes," the WTO mandate was extended beyond the traditional GATT role of negotiations related to trade in goods to include trade in services as well as intellectual property rights.(3) The three multilateral agreements which make up Annex I of the WTO charter include: the GATT 1994 (the updated version of GATT 1947), the General Agreement on Trade in Services (GATS), and Trade-Related Aspects of Intellectual Property Rights (TRIPS). Annex II - the Understanding on Rules and Procedures Concerning the Settlement of Disputes, Annex III - the Trade Policy Review Mechanism (TPRM), Annex IV - the Plurilateral Agreements, and the multilateral agreements among members along with Annex I, constitute the WTO framework. In addition, GATT 1947 accession procedures have been largely carried over to the WTO with the deliberations on trade schedules extended to include services and intellectual property rights. Furthermore, the WTO charter establishes a formal Secretariat headquartered in Geneva.

Principles inherited from the GATT and embodied by the WTO include promoting a trading system that is:

    • Non-discriminatory - by applying MFN and national treatment principles;
    • Reciprocal - by allowing automatic exchange of market access commitments among members;
    • Liberalized - by negotiating lower tariffs and bringing down other barriers and allowing progressive market opening;
    • Predictable - by having countries "bind" their commitments thereby promising not to raise barriers without compensating members if they renege;
    • Fair - by discouraging unfair competitive practices such as export subsidies and dumping (selling products below cost to gain market share);
    • Helpful to less developed countries - by allowing more time to adjust to agreements and greater flexibility as well as special privileges.(4)

 

Specific agreements included under the WTO negotiated according to these principles include: agriculture, textiles, clothing, services, government procurement, rules of origin, intellectual property, financial services, telecommunications, provisions on the environment as well as ministerial declarations on the obligations and commitments of all WTO members. Also, as under the GATT, exceptions are made for regional trading agreements. Customs unions (i.e. the European Union, which is a member in its own right, is usually represented by the European Commission at the WTO, though all EU member countries are also WTO members in their own right(5)), free trade areas and common markets are all accommodated by the WTO. In addition, the four agreements negotiated in the Tokyo Round, which were not multilateralized by the end of the Uruguay Round, known as the plurilateral agreements, are also accommodated by the WTO.

One of the most significant differences between the WTO and the GATT involves the dispute settlement process embodied in Annex II of the WTO Agreement. Under the GATT, the procedure for settling disputes had no fixed timetables, rulings were easy to block, and cases often dragged on inconclusively. The Uruguay Round introduced a more structured process with clearly defined stages and emphasis on prompt settlement. The WTO Agreement also made it extremely difficult for the losing country to block the adoption of the ruling. Under the GATT, rulings were not adopted unless full consensus was reached, meaning one vote, i.e. the losing country's, could block a ruling. Under the WTO, however, rulings are automatically adopted unless there is a consensus for rejection. According to this procedure, any country wanting to block the adoption of a ruling has to convince all other WTO member countries, including the country favored by the ruling, to do so.(6)

Structure/Organization/Functioning of the WTO

The Ministerial Conference is the highest authority of the WTO. It is composed of representatives of all WTO members. It meets at least every two years and can make decisions on all matters under any of the multilateral agreements. There are three bodies established by the Ministerial Conference that report to the General Council:

    • The Committee on Trade and Development - responsible for issues related to developing countries, especially the least developed;
    • The Committee on Balance of Payments - responsible for consultations with countries who take trade restrictive measures due to balance of payments problems;
    • The Committee on Budget, Finance and Administration - responsible for issues related to the WTO budget and financing.

 

The General Council is responsible for the day to day work of the WTO. It reports to the Ministerial Conference and is made up of all the WTO members. In addition to conducting regular work on behalf of the Ministerial Conference, the General Council also convenes in two particular formats:

The Dispute Settlement Body (with a separate standing Appellate Body)

The Trade Policy Review Body

It also delegates authority to:

The Council for Trade in Goods

The Council for Trade in Services

The Council for Trade-Related Aspects of Intellectual Property

The above three bodies are responsible for the oversight of implementation and functioning of agreements on their respective subjects. In addition, each of the four plurilateral agreements (civil aircraft, government procurement, dairy products and bovine meat) has its own management body which reports to the General Council. All WTO members may participate in all councils, committees, and so forth, except the Appellate Body, Dispute Settlement Panel, Textiles Monitoring Body and the plurilateral committees. (See Annex I)

The WTO Secretariat, located in Geneva, Switzerland, is headed by a director- general and four deputies. Each division of the WTO comes under one of these four deputies or the director-general. (See Annex II) The staff numbers around 500. The budget of the WTO is approximately US$93 million and is funded by assessed contributions on members, calculated on the basis of a member's share in total trade of all WTO member countries, computed as a three year average of the most recent trade figures. If a member's share is less than 0.12 percent, a minimum contribution is assessed.(7) This Secretariat is responsible for:

Administrative and technical support for WTO delegate bodies (councils, committees, working parties, etc.);

Technical support for developing countries;

Trade performance and policy analyses by WTO statisticians and economists;

Assistance from legal staff in resolution of trade disputes involving interpretation of WTO rules and precedents;

Dealing with accession negotiations and providing advice to governments considering membership.

Most countries maintain a diplomatic mission in Geneva and many have a special ambassador to the WTO. There are currently 132 member countries and thirty-four observer governments. (See Annex III)

The decision making process of the WTO is by consensus (countries not present or abstaining do not count). There are, however, provisions for voting for cases in which consensus cannot be reached. Voting is by majority rule with "one country, one vote." The four scenarios for voting are:

By a 3/4 majority, WTO members may adopt an interpretation of any multilateral agreement;

By a 3/4majority, the WTO members can have the Ministerial Conference waive an obligation imposed on a member by a multilateral agreement;

By the approval of all members or by a 2/3 majority (depending on the nature of the provision), the WTO can adopt an amendment to any provision of a multilateral agreement;

By a 2/3 majority in the Ministerial Conference, the WTO can admit a new member.(8)

The Singapore Ministerial

This first meeting of the Ministerial Conference of the WTO took place from December 9-13, 1996.(9) Its importance lies in the fact that it provided the first in-depth review and assessment of WTO operations, it established a precedent for future meetings, and it allowed member counties to develop policy guidance for the organization for the near term.

The meeting reviewed the "built-in" agenda established by the Uruguay Round of trade negotiations and introduced further initiatives in government procurement, trade and investment, and competition policy. The ministers failed to adopt a U.S. initiative to include labor standards in the WTO work program, determining that the International Labor Organization (ILO) was the appropriate body to deal with such issues. The ministers also agreed to move forward with commitments made in the Uruguay Round on new agricultural trade liberalization negotiations set to begin in 1999 and approved a plan of action to help the poorest countries through technical assistance. In addition, the ministers expressed disappointment in the number of countries failing to notify the WTO of trade measures or relevant legislation enacted.

DEVELOPED VS. DEVELOPING COUNTRIES

Under the WTO, developing countries now far outnumber the developed countries. Despite this fact, the developed countries still demonstrate superior bargaining power, as was seen in the Uruguay Round, where issues such as intellectual property rights and environmental regulations were codified into the WTO framework. Even though the developing countries have also greatly benefited from their participation in the WTO, trade and environmental issues are two main points of divergence in interests between the developing and developed world.

Trade in Intellectual Property Rights

Developing countries benefit from their participation in the WTO mainly by two means: preferential access to developed countries markets and exemptions from many WTO rules and mechanisms. The concept of 'special and differential treatment' (S&D) was introduced in the Tokyo Round to serve the interests of the many newly independent countries that joined the GATT.(10) The argument behind S&D was to provide protection to the developing countries for their economic development programs. The developing countries also created the principle of "non-reciprocity" to avoid engaging in reciprocal reductions of trade barriers in order to protect their infant industries. The Differential and More Favorable Treatment, Reciprocity, and Fuller Participation of Developing Countries clause, also known as the "Enabling Clause," provided for such departures from GATT rules exempting developing countries from reciprocity requirements.

However, as some of the developing countries achieved greater economic growth, their larger markets became more attractive to firms from the developed countries. In fact, some of these countries, such as Taiwan and South Korea, even had large trade surpluses with the developed countries. This has encouraged the developed countries to pursue more aggressive strategies for opening up the developing countries' markets. The developed countries also began to seek greater protection of their intellectual property rights. In fact, the developed countries have insisted that Trade Related Intellectual Property Rights (TRIPs) play a large role in the WTO. This hurts those developing countries which cannot afford patents and rely on unauthorized copying of developed countries' intellectual property for their "leapfrogging" development strategies. Developed countries control over 90 percent of the world's patents.(11)

Environmental Regulations

Another point of contention between the developed and developing countries is how to implement "sustainable development." Sustainable development is defined as, "the pursuit of economic growth and environmental protection simultaneously."(12) The developed countries often impose penalties, or even bans, on products from developing countries that are produced under environmentally questionable circumstances. The developing countries suspect that any environmental rules by the developed countries are simply ways to limit access to their markets. Thus, there is a wide divergence of opinion between the two groups of countries.

Unlike the developed countries, developing countries often have only two resources: cheap labor and abundant natural resources. The exploitation of these two resources is fundamental to their economic growth. Consequently, environmental degradation is considered unavoidable by the developing countries which want to achieve higher standards of living for their citizens. In fact, countries that have weak or non-existent law enforcement of environmental standards have a competitive advantage in the global marketplace. Many developing countries argue that poverty is a greater problem than pollution. Some even argue that the developed countries are attempting to keep their people perpetually poor and dependent by implementing environmental regulation as a means of "eco-imperialism." They claim that the developed countries became rich by exploiting their own natural resources, and now the developing countries should have the chance to do the same.

According to a recent study, processing activities tend to be less environmentally damaging than extraction activities.(13) The study found that in the production of aluminum, for example, the actual mining of the raw material (bauxite) produces 90 percent of the wastes in total production, while accounting for only 10 percent of the profits. The final stage of production, on the other hand, produces only 10 percent of the wastes, while generating 70 percent of all profits. Thus, many developing countries argue that it is unfair that they must bear the brunt of environmental pollution, while reaping only a small portion of the economic benefits. They argue that the developed countries should pay for, or at least share, the costs of environmental protection programs.

Some developed countries have begun to focus on "carrot and stick" strategies to promote sustainable development. However, many developing countries have rallied against the developed countries' heavy reliance on "stick" measures, such as import penalties and bans, which have often failed to promote positive changes. Instead, the developing countries would like to see more "carrot" measures, such as joint environmental protection programs. Some have argued for a "Green Fund" consisting of contributions by developed countries for assisting developing countries in such programs or at least subsidizing their own abstention from production.(14) Others have argued for the subsidizing of the added expense of undertaking environmentally sound technologies on the part of the developing countries or the forgiving of debt in return for more environmental regulation.

Although there exists many differences between the interests of the developed and developing countries, the WTO should serve as a forum for the settlement of disputes between the two groups. As long as the WTO remains fair and profitable to its members, it should serve the interests of both developed and developing countries. The issues of intellectual property rights and environmental regulations should be discussed in the WTO. Harmonization of the interests of the developed and developing countries will be achieved through compromises on both sides.

SOVEREIGNTY ISSUES

WTO and U.S. Legal Obligations

Another issue that has surfaced as a result of the enhanced WTO framework regards implications for the sovereignty of members. This has been of great concern to the United States. Since the creation of the WTO, the U.S. legal obligation has changed relative to being a party to the GATT. Distinct from its antecedents, the Uruguay Round Agreement represents more serious commitments by its members. Under the Uruguay Round, a member committed itself to, "[ensuring] the conformity of its laws, regulations and administrative procedures with its obligations as provided" in the Agreement.(15) That is, this commitment applies not only to those laws directly related to trade, but to any measure with even an indirect impact on trade that would be inconsistent with the provisions of the Uruguay Round. This involves not only federal laws and regulations, but also all state and local measures.(16)

In addition, the Agreement provides for an enforcement body, the so-called Dispute Settlement Body (DSB) and its Appellate Body. If the United States is found in violation of WTO rules, it would then face the choice of either changing its WTO-illegal law or facing trade sanctions, since member countries have committed themselves to accept, without veto right, the DSB's jurisdiction and rulings on other members' complaints.(17) These more serious U.S. obligations under the WTO structure have caused some groups to object to U.S. participation in the WTO.

The Debate

During the ratification period after the Uruguay Round Agreement was signed, there was debate in the United States on the issue of sovereignty effects of the WTO. Proponents of the WTO cited benefits in terms of jobs and economic growth. For example, the Clinton administration argued that the WTO would create jobs for "hundreds of thousands of Americans," and set up a more effective "foundation for prosperity."(18) On the other hand, opponents, including environmentalists, congressmen, populists, business leaders, and human rights and community activists, were concerned that the DSB would affect the prerogative of the U.S. to pass its own laws and set its own environmental and health and safety standards.

As a result, fifty-five members of Congress (both Democrats and Republicans) urged President Clinton to delay the vote on the Uruguay Round until July 1995.(19) Senator Dole stated that he would only support the legislation if the Clinton Administration backed its proposal to set up a Commission to determine if U.S. interests would be harmed by DSB decisions.(20) If the Commission were to find that the WTO Dispute Settlement Panel exceeded its authority, engaged in misconduct, departed from panel procedures, or deviated from the applicable standard of review, the Commission would report its findings to Congress. Members of Congress could then vote for re-negotiation by the administration of the WTO dispute settlement rules. There appeared to be a political compromise between President Clinton and the Congress; the Clinton Administration supported Dole's proposals and, in exchange, the Congress ratified the Uruguay Round Agreement without delay at the end of 1994.(21)

Lingering Issues

Although it has been more than three years since ratification, there is still controversy regarding the WTO's effect on U.S. sovereignty. The impact of the WTO making decisions by majority vote poses a threat to U.S. sovereignty and national interests. So does the Trade Policy Body, to which the United States is obligated to report its national trade policy and level of compliance with WTO standards, thereby exposing its national affairs to international debate. The most contentious issue of the WTO in regards to U.S. sovereignty, however, is still the new Dispute Settlement Understanding (DSU). This forces the United States to adhere to the decisions of the DSB. This may compromise U.S. federal laws and, critics argue, that the rights of states to preserve their laws and regulations may be challenged by foreign countries through the Dispute Settlement Panel. As noted earlier, an individual member country of the WTO cannot block or veto the rulings of this panel. U.S. laws, therefore, both state and federal, would have to be brought into conformity with WTO rulings. Otherwise, the United States would face retaliatory measures from other member countries.

It is clear that the WTO has no power to force a nation to change its laws.(22) Instead, it will only have the right to authorize countries victimized by an unfair U.S. trading practice to retaliate against U.S. exports, if the panel has found that the U.S. practice violates WTO rules. According to the DSU, the retaliation is limited by the panel to impacting the equivalent amount of U.S. exports as has been affected by the illegal practice.(23) Proponents of the WTO thus argue that retaliatory effects are limited and do not hinder the ability of the United States to enact its own laws.

In reality U.S. domestic laws and practices found to be in violation of WTO rules would be difficult for the United States to maintain. In the United States, domestic laws regulating particular products differ by state. It is unrealistic for the Executive Branch to allow individual states to maintain practices found to be in contradiction with the WTO since the whole industrial sector or even the nation as a whole would be affected by the retaliatory effects authorized by the Dispute Settlement Panel.(24) State laws that are most likely to be affected by the Uruguay Round Agreement concern the environment and health and safety standards. These laws must be the "least trade restrictive" means, according to the Agreement on Technical Barriers to Trade.(25) This would hamper state attempts to set health and safety standards since they are restrictive in nature.(26)

The Uruguay Round Agreement, then, makes it difficult for states to maintain diverse measures, regulations and laws. As the Beer U panel ruled, states' higher regulatory standards could be found discriminatory and in violation of the WTO since another state may have lower standards. Moreover, according to the Agreement on the Application of Sanitary and Phytosanitary Measures (SPS Agreement) as well as the Agreement on Technical Barriers to Trade (TBT Agreement), state food and technical standards must be harmonized with international standards unless special justifications for stricter standards are provided.(27) While states would be permitted to maintain standards weaker than international standards, it would be more difficult for a state to adopt stricter technical food and safety regulations.

In addition to pressure on domestic policy, the DSB would also be able to restrict the United States' ability to use unilateral trade sanctions to enforce certain policy objectives. For example, the WTO would prohibit the United States from unilaterally imposing sanctions on foreign products whose production processes violate U.S. laws. The United States also worries about the DSBs reaction to Section 301 of U.S. trade law. Under the WTO, signatories "shall not make a determination" that a violation of, impairment of, or impediment to WTO obligation and objective has occurred, except through recourse to the WTO dispute resolution procedure.(28) These provisions do not prohibit the use of Section 301 as a whole, but may find it in violation of WTO principles if used without the WTO panel's approval or if found to be inconsistent with the dispute settlement procedure.(29) Though the WTO and its DSB has functioned relatively smoothly so far, there exists the potential for future conflict under the WTO framework due to sovereignty issues.


1 GATT Agreement, Art. I.

2 Hoeckman, Bernard and Kostecki, Michel. The Political Economy of the World Trading System: From GATT to WTO, Oxford University Press, Inc., New York, NY, 1995.

3 See id.

4 http://www.wto.org/wto/about/ basics.htm, "Principles of the Trading System," last updated October 13, 1997.

5 See id.

6 http://www.wto.org/wto/about/dispute1.htm, "The WTO's most individual contribution," last updated October 13, 1997.

7 http://www.wto.org/wto/about/basics.htm, "The WTO Secretariat and Budget," last updated October 13, 1997.

8 See Hoeckman, p. 41.

9 Text: Singapore WTO Ministerial Declaration, December 13, 1996.

10 See Hoeckman.

11 LeQuesne, Caroline. Reforming World Trade: The Social and Environmental Priorities, Oxfam Publications, Oxford, England, 1996.

12 Esty, Daniel C. Greening the GATT: Trade, Environment, and the Future, Institute for International Economics, Washington, D.C., 1994.

13 Schmitdt-Bleek, F. and Wohlmeyer, H. Trade and the Environment: Report on a Study, International Institute for Applied Systems Analysis and the Austrian Association for Agricultural Research, Laxenburg, Austria, 1991.

14 See Esty.

15 Final Act, Art. XVI, paragraph 4.

16 See Ronald A. Brand, "Direct Effect of International Economic Law in the United States and the European Union," 17 Northwestern Journal of International Law & Business, (1996-1997) (discussing the status of GATT/WTO agreement in US and EU domestic laws).

17 James Bovard, "Getting Past the Politicians' Interference in Global Trade," The Washington Times, November 30 (1994) at A23.

18 Susan Aaronson, "The Policy Battle Over Freer World Trade," 37 Challenge 48, November (1994).

19 See id.

20 For more details of the Dole Commission, see Gary N. Horlick, "WTO Dispute Settlement and the Dole Commission," Journal of World Trade, 45-48, (1996).

21 See id.

22 See Judith H. Bello, "The WTO Dispute Settlement Understanding: Less Is More," 90 AJL 416 (1996).

23 See Understanding on Rules and Procedures Governing the Settlement of Disputes, Final Act Embodying the Results of the Uruguay Round of Multilateral Trade Negotiations, April 15, 1994, reprinted in 33 I.L.M. 1125, 1143 (1994), at Art. 22, Paragraphs 2, 6.

24 See DSU, supra note, Art. 22(1).

25 Agreement on Technical Barriers to Trade, Art. 2(2), 3(1).

26 Lawrence H. Tribe, "The World Trade Organization and the Treaty Clause: the Constitutional Requirement of Submitting the Uruguay Round of GATT as a Treaty," Prepared Statement Before the Senate Committee on Commerce, Science and Transportation, October 18, 1994 (discussing the impact of WTO on domestic law and sovereignty).

27 WTO Agreement on the Application of Sanitary and Phytosanitary Measures, Art. 9 and Agreement on Technical Barriers to Trade, Art. 2(4) and 3(1).

28 See more detailed discussion of the WTO and the environment in 12 Arizona Journal of International Comparative Law, 7, 29.

29 See Thomas Bayard and Kimberly Elliot, Reciprocity and Retaliation in US Trade Policy, Institute for International Economics, Washington, DC (1994) at 343-348. See also Jared R. Silverman, "Multilateral Resolution Over Unilateral Retaliation: Adjudicating the Use of Section 301 Before the WTO," 17 U. Pa. J. Int'l Econ. L. (1996).
 

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