The World Trade Organization (WTO) held its Third Ministerial Conference in Seattle in late 1999. This meeting brought together some 2,500 official delegates from 135 member countries and many observer countries; at least 2,000 journalists from around the world; about 800 nongovernmental organizations (NGOs) representing agricultural, manufacturing, labor, environmental, high-tech, financial, and other associations; and 40,000 protesters. The conference ended without achieving its objectives other than planning to continue discussing trade issues.

WHY THERE ARE INTERNATIONAL TRADE RULES

Since humans appeared on earth, trading has been a basic behavior. Over the centuries, international trade has played an important role in international politics, economic development, and cultural exchange. When economists study the patterns of international trade they focus on the concept of comparative advantage. According to comparative advantage, world output is greatest when each country specializes in producing goods that it is relatively "best" at making ("best" meaning that the country makes goods more productively than others do). Consumers want a variety of goods, so countries trade their specialties with each other, exporting what they are best at and importing those products that someone else is relatively better at making. Thus, trading benefits people a both ends of the exchange. When world production and trade patterns follow the principle of comparative advantage, world output and consumption are at their maximum levels. This argument is cited by people who want governments to support policies of free trade-that is trade without any barriers or obstacles between countries.

Despite the benefits of free trade, trade protection is common around the world, historically and today. Trade protection means that governments create policies-trade barriers-that reduce or prevent trade between countries. The simplest trade protection policy is a tariff, a tax that is placed on imports. Tariffs make imports more expensive and thus less competitive with domestic (home-produced) products. Tariffs raise prices, which hurts consumers, especially those with the lowest incomes. Among the many forms of non-tariff barriers to trade are subsidies and product standards. Subsidies are government payments to producers that allow them to sell their goods more cheaply than can foreign producers. Standards are rules that a product must satisfy, such as restrictions on ingredients or regulations on size and packaging. It is often cheaper or easier for home producers to comply with standards than for foreign producers to meet them.

Tariffs are clearly intended to reduce imports, but the reasons for non-tariff barriers are not so clear. Sometimes they are intended to achieve social goals such as consumer health, worker safety, or environmental protection. Sometimes they are simply trade barriers in disguise. International efforts to remove non-tariff barriers to trade can thus turn into international arguments about whether they are primarily social policies or trade policies.

THREE REASONS WHY WE OBSERVE SIGNIFICANT TRADE PROTECTION RATHER THAN FREE TRADE

First, even though comparative advantage says that free trade results in maximum production and consumption, this does not mean that every person gets more. People who make goods for export and consumers who buy products benefit from trade. People who compete with imports are hurt by trade. The producers facing import competition have a lot at stake, and they often argue more loudly and more convincingly in favor of trade protection than do the exporters and consumers who argue for free trade.

Second, societies have goals beyond just high production and consumption of products. For example, a country might want a clean environment and healthy citizens or military security or jobs for young people. Policies such as environmental, health, and safety standards, controls on weapons trade, or job and education subsidies may aim to achieve these goals, but they may also create barriers to trade.

Third, in hard economic times, governments naturally think first about taking care of their own citizens. It seems logical to try to protect jobs by protecting their home companies from international competition. The problem is that if every country does the same thing, then world trade dries up and economics stagnate. This is what happened during the Great Depression of the 1930s.

If there were no international rules about when countries can and cannot put UP trade barriers, international trade would be difficult, uncertain, and costly. Imagine a world in which each country had its own trade rules that might differ for each trading partner. Imagine that the rules could change from day to day and that countries could retaliate against each other for trade barriers. It is easy to see that such a world would have a lot less trade. Such a world would also see many trade arguments between countries, some of which could lead to war. We do not have to imagine these consequences, as this was the situation before World War I and between the two world wars. After World War II, world leaders agreed about the need for rules for inter national trade that would help prevent the economic chaos of the prewar years.

ORIGINS OF THE WORLD TRADE ORGANIZATION

In the aftermath of the Second World War, concern about promoting trade along with the experience of the Great Depression, led government policy-makers to try to establish a rules-based international trading system. They believed that trade rules had to be made multilaterally (that is, with many countries participating in the process), because unilateral actions (each country acting alone) would result in endless arguments and less trade. This period saw the establishment of organizations such as the International Monetary Fund to deal with exchange rate and international payments issues, the World Bank to deal with economic development issues, and the United Nations and its many agencies. The roster of proposed international agencies included an International Trade Organization (ITO), which was suppose to set and monitor international trade rules.

Fifty countries signed an agreement to create the ITO, but only two countries ratified and the ITO never came into being. However, as part of the preparation for the ITO, 23 countries signed a 1948 agreement on how to decrease tariffs. This General Agreement on Tariffis and Trade (known as the GATT) was already in use when the ITO plan died. Since everyone expected a replacement for the ITO to be created very quickly,no one saw any need to get rid of the GATT agreement. At the time, no one expected that it would take almost half a century to create a permanent replacement for the ITO.

But, for almost half a century-and entirely by accident-the GATT remained the only international trade agreement. Never intended to govern all international trade, the GATT had many gaps and weaknesses. For example, the original GATT had no institutional structure (no building, no permanent staff), that was supposed to be in the ITO. It had no procedures for deciding trade arguments between countries. It had no enforcement powers. All that was supposed to be in the ITO. The GATT only covered tariffs; it had no rules for non-tariff barriers to trade. It also was intended only to deal with trade in manufactured goods.

Over the course of 45 years and eight rounds" of multilateral negotiations, the GATT membership grew to well over 100 countries, and the GATT agreement was stretched and extended in a variety of ways. For example, early on the GATT developed a way to deal with trade arguments. Each country would argue its case before a panel of GATT judges, and the judges would make a decision (a dispute "settlement"). Unfortunately, because the GATT had no power to enforce these decisions, losing countries regularly ignored GATT findings. Another extension started with the Tokyo Round (1973-1979), in which GATT participants agreed on the first rules regarding non-tariff barriers to trade. The Uruguay Round (1986-1993) was the first to create sets of rules for trade in agricultural products and trade in services.

However, by the time of the Uruguay Round, the capacity of GATT had been stretched to its limits. Countries were unhappy that the rounds were long, that GATT findings were often ignored, and that countries were making their own rules for problems the GATT did not cover. Therefore, the Uruguay Round also produced an agreement to create the World Trade Organization (WTO), the long-awaited successor to the ITO. The 1993 Uruguay Round agreement was ratified in 1994, and the WTO came into being on January 1, 1995. The WTO differs from the GATT in three important ways:

• It is a permanent organization, with a director, staff, and headquarters.
• Members negotiate continuously at the WTO, instead of only during rounds, as under the GATT.
• Members cannot ignore the findings of dispute settlements. If they do, they face penalties.

HOW THE WTO DEALS WITH TRADE ARGUMENTS

Trade disputes (trade arguments) are an inevitable art of trading. One country complains that another has unfairly restricted the import of its products, and an arguments starts. Arguments are especially difficult if they involve non-tariff barriers. The country accused of an unfair trading practice can claim that its policy has nothing to do with trade, that it is supposed to make people healthy, save the environment, promote education, and so forth. That country is likely to argue that it should have control over policies within its own borders. The country bringing the complaint usually , says the policy is trade protection in disguise.

The GATT and the WTO have rules for deciding whether a policy should be allowed. Some key rules are:

• No discrimination: A country must set the same policies for all of its trading partners-also known as the "most favored nation principle." Note that "no discrimination" does not mean trade barriers have to be low. A country could have high barriers, as long as they are the same for everyone.
• Health and safety standards must have a scientific basis-there must be scientific evidence of risk that is based on international standards or on studies done by the country.
• Least trade-restrictive policies-if there are different ways to achieve the same desirable result, a country must choose the policy that restricts trade the least.

The WTO’s dispute resolution process is much like the GATT's: A panel of three judges hears from both sides and decides whether a WTO rule has been broken. The two sides are supposed to try to work out their differences before they go to a panel. Once the panel makes a decision, the losing country can appeal once. If it loses the appeal, then it must change its trade policy or pay compensation to the winning country. If the loser does not do either of these things then the winning country is allowed to punish the losing country by putting tariffs on some of its products.

THE WTO TODAY

As of January 2000, the WTO has 135 countries. Among the prominent nonmembers are China and Russia. China has been negotiating to become a member for some time, but no agreement has been reached.

The WTO, like the GATT before it, makes decisions by consensus, not by voting process. Only government representatives take part in WTO decision making. Private companies and nongovernment groups cannot make speeches to delegates or testify in WTO hearings.

The WTO's headquarters is located in Geneva, Switzerland. The current head of the WTO (the director-general) is Michael Moore, a New Zealander, who took office in September 1999 after a bitter argument among WTO member countries. Mr. Moore succeeded Renato Ruggiero of Italy. Many developed countries supported a rival candidate from Thailand, Supachal Panitchpakdi. The argument over Ruggiero's successor ' strained the consensus-based decision making process of the WTO. For several months it seemed impossible that all the members could agree on a candidate. Finally the membership settled on a compromise: Mr. Moore will serve for the first three years of a six-year term and Mr. Panitchpakdi will serve for the next three years.

Under the WTO rules, the trade ministers of member countries must meet at least every two years. The Seattle Ministerial Conference was the third since the WTO was created. The Seattle meeting was expected to launch a new round of international trade negotiations, but largely due to protests and demonstrations, this did not occur. Some countries, including the United States and the European Union, wanted the WTO to discuss new areas such as trade and the environment, labor issues, and opening dispute resolution procedures. However, other countries, especially less-developed ones, wanted the WTO to concentrate on helping poorer countries by completing the removal of trade barriers in agriculture and manufacturing before taking on any new areas.

CONTROVERSIES ABOUT THE WTO

One consequence of a permanent WTO (rather than just a GATT agreement) is that it has drawn a lot of criticism and protest from nongovernmental organizations (NGOs) concerned about a wide range of issues relating to the environment, labor issues, human rights, national sovereignty. It has also become a lightning rod for protests against globalization In general-including opposition to free trade, international investment, and the activities of Multinational corporations. Some criticism addresses issues that the WTO did not discuss in Seattle. For example, some WTO rules on the environment are limited in scope or are ambiguous, and member country ministers have generally refused to negotiate rules on labor rights. Some criticism attributes more power to the WTO than it actually has. For example, the WTO has few rules that deal with international investment, and it does not regulate international capital flows-those functions belong to the International Monetary Fund. The WTO also does not prescribe economic development policies, the mandate of the World Bank.

The WTO has also been accused of being undemocratic and of making decisions "behind closed doors." It is true that WTO decision-making is not open to the public, but whether this is good or bad is not clear. Recall that the WTO makes decisions by consensus. Consensus-building is a slow process that is, by its nature, not very public. This decision-making style is common in many countries around the world (and has the advantage of producing no losers who lose face), but it is unfamiliar to those used to majority voting.

Problems are inevitable in any rule based system. Rules can be inflexible. Rules can have unintended consequences, especially when the world changes. The growth of the Internet an new industries such as biotechnology create challenges for the WTO. For example, WTO rules to protect knowledge (patents, copyrights) have allowed corporations to patent the DNA in tropical plants with the result that poor countries could lose control over their own products.

Supporters of free trade have responded to WTO critics with the argument the trade promotes economic development. As evidence, they point to the economic records of developing countries in recent decades. Those open to trade (e.g., in East Asia) have prospered, while those closed to trade (e.g., in subSaharan Africa) have fallen behind economically. They also note that trade barriers hurt poor people (especially low income workers and consumers) more than people with high incomes. WTO supporters argue that developing countries will gain a lot from a new WTO round that removes agricultural and manufacturing harriers set by developed countries.

Both supporters and critics of the WTO tend to oversimplify the issues to make their cases more persuasive.

Source. "Approaching WTO Education: How to Bring 1+70 into Your Classroom by Engaging Students in International Trade Disputes, " World Affairs Council of Seattle, 1999.