What has the WTO done for us?

05 December 2003

On 1 January 1995, in one of the most theatrical moments in recent economic history, Peter Sutherland brought the gavel down at a meeting in Geneva to sound the launch of the World Trade Organisation (WTO). The enthusiasm was genuine. Unlike the general agreement for tariffs and trade (GATT) that it replaced, the WTO was based on an international treaty binding on all its members. Some forecast that it would soon become more important than the IMF and the World Bank in setting the agenda for global economic development.

Sutherland, the last GATT chairman, immediately left and now chairs Goldman Sachs International in London. He bequeathed to his successors the thankless task of making the new organisation work. That moment, nevertheless, was a high point in the Irishman’s glittering career. Almost nine years on, cynics suggest its first day was perhaps the high point for the WTO itself.

The problems facing the WTO were immediately enormous. It has to enforce trade rules running to a total of 30,000 A4 pages, probably amounting to close to 10 million words, plus 60 agreements and separate commitments. The WTO has 560 staff, a fraction of the number employed by the World Bank and IMF and far too few to do a good job. The organisation occupies a lovely spot on the shores of Lake Geneva, but its isolation from the main centres of economic activity has hindered its efforts to stay relevant.

The central, and possibly fatal, issue is the way the WTO operates. It has 146 members. This compares favourably with 184 at the IMF. But members of the WTO have equal voting rights, unlike at the IMF, where the US has almost 18 per cent of the votes and effective veto power. The big IMF five dominate and direct the fund, giving it purpose and coherence.

The desire to give equal weight to even the poorest nation has turned WTO ministerial meetings, the latest in Cancun in September, into the contemporary equivalent of the tower of Babel. Majority agreement is almost impossible and even consensus is elusive. The gap between poor nations that reject the priorities of the rich often seems unbridgeable.

Enforcing WTO rules looks equally challenging. If each member had just one complaint against every other, there would be more than 30,000 cases. Each would have to be judged and then survive an appeal process. Only 300 cases have been brought to the WTO, but this suggests lack of confidence in the organisation’s ability to deal with disputes.

The unworkability of the WTO’s structure has led to a shift in emphasis towards regional trade agreements and away from the multilateral approach that led to chaos in Cancun. The idea is that groups of countries should reach agreements among themselves first. The problem here is that there is no guarantee that the regional agreements will comply with WTO rules. The principal Middle East example is the GCC, comprising the kingdom plus Bahrain, Kuwait, Oman, Qatar and the UAE. It has declared a common external tariff policy and yet, for almost two decades, has failed to satisfy the EU’s conditions for the establishment of a free trade area between the two trading blocs.

And now Saudi Arabia is poised to join the complexity and conflict that is the WTO. Possibly by the time you read these words, the kingdom will have signed a bilateral agreement with the US, the key to the door to WTO accession, which could take place in early 2004.

Accession will be an enormous achievement for Commerce & Industry Minister Hashim Yamani and his hardworking team. Saudi accession will bring into the WTO the last major trading non-member nation, which this year is likely to record imports and exports in goods and services worth more than $130,000 million. WTO membership will be hailed in the US and cheered across Europe. For some, it would represent the kingdom’s final assent to full membership to the rules of the global economy.

And yet there is a question hanging over Riyadh’s accession and the WTO adventure as a whole. After all the talk, will it deliver on its promise to promote genuine free trade on a global basis? Will it give a welcome new boost to economic growth in Saudi Arabia and the Middle East? Or will the forces of protectionism in the US and entrenched in every fibre of the EU eventually emerge as the principal winners?

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