The World Trade Organization

3 pages by Michael Phillips, 5/2000

The WTO is a new organization. In its short, six-year life it has succeeded in:

* restraining the power of the United States, which in the past had been aggressive in forcing other nations to accept American products.

* reducing the power of American corporations to manipulate American foreign policy.


The United States has a long history of forcing other countries to open their markets. Pressure to open foreign markets to American-made cigarettes began in the mid 1970's. Continuing in that tradition the U.S. government tried to force the Japanese government to eliminated trade barriers to autos with steering wheels on the left side of the car from the early 1980's. This matter was one of the first issues brought to the WTO for arbitration. Japan argued that Japanese cars drive on the left side of the road and consequently a significant volume of imported automobiles with left-hand steering would be a safety hazard. The WTO ruled in favor of Japan and the U.S. has since dropped the issue.

Before the WTO settled the matter, it had been a major focus of Japan-bashing. President Bush had previously vomited on the Japanese Prime Minister while trying to force the Japanese to accept autos with left-hand steering.

In February of this year, 2000, the largest case in the history of the WTO was decided against the United States government. The WTO final arbitration panel found that the U.S. illegally subsidizes U.S. corporations selling overseas to the amount of $1.5 billion per year with the "Foreign Sales Corporation" tax provisions. The U.S. will have several years to eliminate the tax law or make other arrangements to compensate the 136 members of the WTO.

It is customary for U.S. corporations to pressure the Department of Commerce and the State Department to open foreign markets for them. In one such case, Kodak pressured the Department of Commerce and the State Department to force open the Japanese film market to Kodak film. Kodak claimed that it had been limited to 5% of the Japanese retail film market.

Japan objected strongly and took the case to the WTO to arbitrate. The WTO investigated the matter, listened to both sides and found that Kodak had restricted the Fuji Film company to 5% of the American market, prior to Fuji having done the same thing to Kodak in Japan. The WTO arbitrators told Kodak to open the American market first and then to expect the same behavior by Fuji in the Japanese market. The case was settled. The matter was no longer subject to Kodak pressuring the American government for an advantage.

The WTO has been arbitrating cases since it was formally created in January 1995. It has completed, settled or withdrawn 33 cases and is currently implementing the decisions coming from an equal number. About one hundred cases are just beginning the complaint/ investigative process. A list of all the cases before the WTO arbitration panels, past and present is on the WTO web site at http://www.wto.org/wto/dispute/bulletin.htm

To bring a case to arbitration, it must be requested by one of the WTO member nations. In the WTO, all 136 nations have an equal vote. It is not like the United Nations, where major powers have a veto on important matters. Among the 136 member nations there are many small ones: Fiji, Haiti, Sri Lanka, Mali, Trinidad and Tobago.

After a request for arbitration is filed with the WTO headquarters in Geneva, three arbitrators are selected from a list of prominent international arbitrators who are not party to the dispute. The entire procedure is spelled out on the WTO web site at http://www.wto.org/wto/dispute/dsu.htm

After the matter is heard, decided and published by the arbitration panel, it is brought before a review panel for final decision. After that, the aggrieved party is allowed to take action. If the arbitrators find that the country which brought the action has faced unfair restrictive barriers in the accused country's market, the country bringing the action is permitted to demand compensation or use retaliatory barriers. If the damage has been large, the aggrieved nation can usually find allies to join in erecting retaliatory barriers. The dollar amount of the retaliatory barriers is limited to the amount of damage that was done in the first place. The amount is included in the published documents of the arbitration panel.


Opponents of the WTO accuse it of five egregious behaviors:

* It is labeled as undemocratic.

All 136 members have an equal vote and new members, such as China, are regularly added if they agree to abide by the rules of the WTO. Changes to the rules require a unanimous vote. All members agree to have their trade practices audited in order to maintain their membership. The four largest WTO members are audited most frequently, every two years.


* It is called secretive.

WTO panels are three-member arbitration bodies; they publish their findings and are subject to review by oversight panels and by final review before the entire 136-member body. This arbitration process is more open than the thousands of commercial arbitration panels convened in the United States every year, most of which don't publish decisions, have no appeals and keep their settlements secret.


* It is painted as opposing environmental concerns.

There has only been one environmental trade matter decided by the arbitration panels; it was about sea turtles netted by shrimp fishermen in the Indian Ocean. The finding was that the United States had unfair barriers to shrimp from nations fishing in the Indian Ocean. The matter was negotiated. The U.S. agreed to accept the shrimp and the Indian Ocean nations agreed to use American-provided shrimp-netting equipment.


* It is accused of always ruling against labor union interests.

There have been no labor cases arbitrated to a final decision. Several anti-dumping cases are still being arbitrated; U.S. labor unions have been using anti-dumping laws to punish foreign corporations when the dollar gets strong and foreign companies are able to lower their U.S. prices. Most academic economists and business professors consider U.S. anti-dumping laws to be arcane, costly and harmful to consumers. The matter is still open.


* It is claimed that the WTO has overruled local human rights laws.

There is one case in which the WTO ruled against the State of Massachusetts for its ban on buying products from Myanmar. The issue will soon be moot because the same matter has been working its way up the courts to a final decision by the U.S. Supreme Court. Most legal scholars and many state Attorneys General have stated that Massachusetts, and other local bodies, do not have the power to ban foreign products or actively participate in foreign affairs under Article II, section 2 of the U.S. Constitution.


The cases referred to here are all on the internet at www.wto.org. The left hand driving case is DS-56, the U.S. Foreign Sales Tax is DS-108/1, Kodak vs Fuji is DS-44 and 45, the sea turtles case is DS-58, and Massachusetts is DS-88/1.