Commentary: Why The Wto Needs An OverhaulPaul Magnusson
It's time to fix the World Trade Organization. Unless the Clinton Administration can quickly lead a major reform effort, the 500 Geneva-based trade bureaucrats who implement the WTO's rules might just unravel 50 years of progress in opening world markets.
Three major defeats recently suffered by the U.S. show that the WTO is stumbling--perpetuating subtle barriers it was intended to eliminate, while failing to keep up with the revolutionary growth in world trade. Without a broader, more sophisticated approach to the global economy, some greater expertise by its judges, and reform of its procedures, the three-year-old WTO will sacrifice its dwindling credibility.
This isn't a case of sour grapes. Unless the WTO stands for reducing trade barriers, rather than perpetuating them, it has no raison d'etre. And it's up to the U.S., which forced creation of the 132-member WTO, to make sure that the organization remains true to its mission.
STAR CHAMBER? The biggest problem is the WTO hearing process--more the 16th-century Star Chamber than a body that was created by democratic governments in the late 20th century. Hearings are held in secret, outside attorneys are excluded, and amicus briefs often aren't considered. With a lack of transparency and limited input, some WTO rulings defy reason.
The latest blunder: a little-noticed appeal panel decision on June 5 to let Britain, Ireland, and the European Union reclassify imports of U.S. local area network (LAN) computer equipment as telecom gear--doubling the duty from 3.9% to 7.5%. The decision's logic is impenetrable, but the precedent is clear: Countries can ratchet up protections by linguistic legerdemain.
That tortured decision follows a May 15 ruling branding U.S. attempts to protect endangered sea turtles a violation of world trading rules. Federal law prohibits imports of shrimp from countries that allow trawling in seas frequented by sea turtles, unless nets are equipped with trap doors to let the turtles escape before they drown; domestic shrimpers are treated no differently. In a bizarre twist, the WTO brushed aside an international treaty protecting many turtles as endangered.
The most significant U.S. dollar loss to date was the massive case brought on behalf of Eastman Kodak Co. against the government of Japan. The U.S. charged that Tokyo protected domestic film maker Fuji Photo Film Co. from import competition. Some experts say Washington had a weak case because much of its evidence of government-industry collusion was old. Nevertheless, the WTO decision implied that the cozy Japanese distribution system is outside the scope of global trade laws. Unless the WTO panels can broaden their approach beyond narrow legalisms, other nations will be encouraged to follow Japan's lead. What if China, with its massive state-owned or subsidized industries, joins the WTO and comes before it with a dispute?
TIME FOR REFORM. The Clinton Administration argues that it has won more cases than it has lost before the hearing panels. Of 41 cases the U.S. has brought, it has won 7 and lost 2, with 9 more that were settled in its favor. Of 19 brought against the U.S., 4 were lost by the U.S., and 7 settled in favor of the U.S. side. But it's the smaller, more winnable cases that were brought and decided first. And now the latest trend shows that the tougher and more significant cases are setting the worst precedents. (All of the remaining cases are pending.)
President Clinton now has the opportunity to push for reform. The pact establishing the WTO in 1995 called for a review at the three-year mark. And Clinton promised Congress in 1994 to appoint a group of U.S. appellate judges to review the trade organization's competence should the U.S. lose three cases in a five-year period. He can do that now.
Trade has become too important to be controlled by a faceless bureaucracy. The Clinton Administration should mount more pressure for reform. The WTO is too important to fail.