The WTO rules skew the benefits of trade to the already wealthy economic actors in developed states


Introduction:

A number of issues have led to arguments that the WTO skews the benefits of trade to the developed world because there is failure to understand that the system of free trade can result in exploitation of weaker players. The following discussion explores limitations for developing countries in three keys areas; 1) the inability to protect national agricultural industries through MFN agreements; 2) the use of the SPS agreement as a way for developing countries to restrict importations; and 3) the restriction of countertrade on an international basis. For reasons of space, this discussion it will focus on countertrade. However, this links to the problems in points 1 and 2; whereby countertrade could promote developing country natural resources without limiting the protections under GATT and the SPS agreement. Therefore, point 3 is being treated as a restrictive practice when it could be a promoter of free trade and development.

WTO, Trade and Development – GATT Restrictions and SPS Protectionism:

GATT policy was developed to promote free trade and is based on a non-discrimination principle. This model actually promotes the concerns of developed states due to their technological, economic and political power. Page notes that while the GATT and WTO agreement implies equality, the actual international structure is skewed to the developed world. The system relies on self-interest; thus, it is problematic to “produce an efficient solution, [which] suggests that there are additional gains from joint implementation.” Page similarly argues that all nations benefit from an equitable MFN rule whereas “any individual pair of countries might gain, at the cost of others, by offering more favourable treatment”. For these reasons, Page contends that “transparency and enforcement are central” to the implementation of developing countries issues; however there needs to be a greater consideration of sustainability and development. In fact, conservation issues and development issues are treated in a similar manner that date back to 1980s concepts. Thus, a wider approach to understanding fair trade is essential in GATT restrictions.

In stark contrast, there has been a fairly liberal approach to SPS restrictions. This means that SPS protectionism affects developing more than developed countries, because the technology and advanced sanitation programmes are limited or absent in the developing world. This is even more the case because of the reliance on the agricultural sector, which is where SPS protections dominate. Therefore, the advantage that developing nations have in nonmanufacturing sectors is more than countered by the technical barriers to trade [TBTs] of developed nations.

Countertrade – A Promoter of Sustainable Free Trade:

A primary problem in the WTO system is that it has placed barter and countertrade on the back shelf, as a restriction on trade due to on-going trade exchanges between countries. This is a TBT in the same way as the SPS restrictions that allow developed world protectionism. The fear in the WTO approach is that countertade will breach Article I and III of GATT. However, countertrade is a practical way of dealing with a shortage of foreign currencies as well as evading trade barriers in developed countries and encouraging exports. Countertrade also helps offset unfavorable currency exchange rates, particularly in developing countries. Particularly in Latin America and Africa, countertrade encourages intraregional economic exchanges. Even so, it has been negated by the WTO, because it has been severely restricted by Article XVII of GATT.

All countertrade must be treated in the same manner as usual business practices in terms of competition for sales. The problem with this is that the developing world usually has the raw agricultural materials while the trading partner has the refined goods. Thus, an exchange of value on international prices results in a continued exploitation of developing countries. Therefore, it is important that an extension of countertrade is allowed, which allows an ongoing engagement between countries.

Countertrade can thus be used as technology transfer to increase the capabilities of the developing world. Such behavior corrects the skew in the application of GATT, for example the trade of copper for computers.

Conclusion:

While the MFN provisions are necessary and not a TBT, yet SPS protectionism and the refusal of the WTO to support the countertrade system do constitute a TBT. The arguments against countertrade are based on a technical financial system that is based on cash and cash equivalents. This is valid for SPS restrictions, but trade in technology for healthy agricultural goods would provide a better option. In other words, the use of countertrade can be used to create a fair and free trade system. Also the SPS approach seems to be in discord with the decisions toward a wide application of GATT designed to ensure TBTs are not an excuse for protectionism. The promotion of countertrade for developing countries should be applied in SPS cases to enable nations which lack foreign exchange credits to obtain essential imports of products like food and medicines. However, this violates current protectionist policies in developing countries; which in turn highlights the bias of the SPS system toward developed countries. Therefore, there must be a reconsideration of the place of countertrade in the WTO system.