The Guardian October 10, 2001

WTO: TNCs versus the people

As the November World Trade Organisation (WTO) ministerial meeting 
approaches strong disagreements between member states remain with the very 
real prospect of another Seattle. At the Seattle ministerial meeting in 
November 1999, Third World countries united to block proposals from the EU, 
the USA and other industrialised countries for negotiations on new 

An informal meeting of the General Council of the WTO held on July 30-31 
this year failed to resolve these differences, let alone agree on a draft 
joint declaration for adoption at the next meeting in Doha (Qatar) in 
November.Third World countries continue to demand that many long-standing 
problems be resolved first and existing agreements be implemented. 

This week, Anna Pha, the Editor of The Guardian, begins a new series 
which looks at the WTO, its origins, its agreements and their 
implementation and the conflicting demands of the Third World and 
industrialised countries.

In 1944 the Bretton Woods conference established gold as a standard and set 
up two international financial institutions with the purpose of creating 
greater financial stability and facilitating free trade around the world.

The International Monetary Fund (IMF) was to deal with short term funds for 
countries facing temporary balance of payment problems, and the 
International Bank for Reconstruction and Development (the World Bank) was 
to provide long-term assistance primarily to governments requiring loans 
and finance for infrastructure and development needs.

In 1946, the US sponsored negotiations seeking to establish a third body, 
an International Trade Organisation, to promote freer trade and to regulate 
trade policies.

The ITO was stillborn, but a general agreement on Tariffs and Trade (GATT) 
was signed in 1948, with 23 nations signing on.

GATT, the IMF and WB played an important role during the period of post-war 
reconstruction and initially gave considerable assistance to governments in 
providing economic stability and infrastructure for the emerging 
transnational corporations.

Technically GATT was not an organisation but a treaty, with contracting 
parties, that gradually assumed many of the functions planned for the ITO.

GATT's preamble lists its objectives as the conduct of trade relations with 
a view to raising living standards, ensuring full employment, expansion of 
production, exchange of goods, raising incomes and demand (for goods), and 
the full use of world resources.

Contracting parties agreed "to contribute to these objectives by entering 
into reciprocal and mutually advantageous arrangements directed to the 
substantial reduction of tariffs and other barriers to trade, and to the 
elimination of discriminatory treatment in international commerce".

Ongoing process

There were eight separate rounds of negotiations: the Geneva Round in 1947, 
Annecy (1948); Torquay (1950); Geneva (1956); Dillon (1960-61); Kennedy 
(1964-67); Tokyo (1973-79); and the Uruguay Round (1986-94).

The earlier rounds focused on tariffs and trade in manufactured goods, 
greatly assisting industrialised countries to gain access to third world 

The Uruguay Round was noteworthy for its comprehensive nature covering 15 
areas including trade in clothing and textiles, agriculture, trade in 
services, trade related investment measures, natural resources, trade 
related intellectual property rights, and sanitary and phyto-sanitary 
measures which deal with a wide range of food standards, including chemical 
and pesticide contamination, additives, labelling, packing and inspection.

Unlike previous rounds, it was a total package, all or nothing. Countries 
could not choose which agreements to sign, as in the past.

GATT principles

Countries signing the GATT treaty committed themselves to two basic 

The first, known as "most favoured nation" (MFN) treatment, obliges parties 
to grant each other equal treatment: a benefit related to trade (e.g. 
tariff reduction, lower tax rate) given to one (most favoured) nation must 
be extended to all members of GATT.

The second main principle is "national treatment" (NT).

This states that an imported product must be treated no less favourably 
than a domestic product in respect of taxation, rules, requirements 
relating to sale, purchase, transportation, distribution, or use of the 

No member country can have a regulation laying down, for example, that a 
certain percentage of a product must come from domestic sources.

GATT (and now WTO) negotiations are based on the principle of "reciprocity" 
and the "principal supplier rule".

Under the principal supplier rule negotiations begin bilaterally between 
the exporter of the largest volume of a product, the "principal supplier", 
who asks another country to reduce tariffs on that product in exchange for 
an equivalent concession (reciprocity) from the other country on a 
different item.

For example, if Australia agrees to lift tariffs on cars from Japan, it 
should also agree to lift tariffs on cars from all other member countries 
of GATT  they should all be given the same of equivalent favourable 
treatment as given to Japan.

Reciprocity allows countries to offer tariff reductions in return for 
equivalent concessions from trading partners on other items.

Once agreement is reached other countries enter the process, and the 
outcome is binding on all other countries through the MFN rule.

If a country cannot offer something, it cannot request a tariff reduction. 
In practice this means that the major developed countries negotiate 
reductions among themselves in secret, with Third World countries locked 
outside but having to abide by the outcomes.

GATT and now the WTO, favours the exclusive use of tariffs as the only form 
of trade assistance. Other forms, such as tax concessions, subsidies, 
quotas etc, are to be eliminated or phased out.

All countries are supposed to receive equal tariff treatment (the so-called 
level playing field), regardless of the fact that some are in a more 
advantageous position in regard to their level of development, level of 
competitiveness, technology and bargaining power.

Loss of sovereignty

The above principles, along with the rules governing tariffs, remove much 
of a government's ability to take measures to protect or encourage local 
industry as against foreign investors or imported goods.

For example, it means that the Australian Government cannot give local 
orange growers assistance to compete against imports from Brazil or 

It cannot give the car parts industry protection by insisting that a 
certain percentage of parts be made in Australia.

The various provisions of the Uruguay agreement are being phased in as 
countries negotiate agreements on their implementation.

Each country has a schedule for reducing tariffs and other forms of 
assistance and removing preferential treatment to domestic corporations.

Australia, for example, has schedules to phase out tariffs in the car, and 
clothing and textile industries.

Third World sold short

The Uruguay Round lasted for eight years and a great deal of opposition was 
expressed to some of the areas being negotiated.

The Third World countries opposed the introduction of new agreements on 
trade related services and intellectual property rights.

They were anxious to fully implement existing agricultural and 
manufacturing agreements first, as the industrialised countries had not 
removed the barriers to imports from third world countries.

Under incredible pressure and coercion from the EU and US, they reluctantly 
agreed to the introduction of new areas of negotiation on the basis that 
they would also receive benefits in the areas of direct concern to them.

Great promises were made by the leading industrialised countries in return 
for accepting the new agenda. These promises have not been honoured.

Towards the end of the Uruguay Round, Third World countries were also 
coerced into accepting the creation of the World Trade Organisation, which 
came into existence on January 1, 1995.

GATT agreements came under the jurisdiction of the WTO.

Unlike GATT, which was a treaty with various agreements, the WTO is an 
organisation with a number of powerful mechanisms for enforcing agreements 
and resolving disputes.

In practice, the dispute settlements procedures have not enabled 
governments, Third World countries in particular, to take protective 
measures in the interests of their people.

The various dispute committees and panels set up under the agreement have 
tended to favour free trade rather than the health, safety or environmental 
concerns of nations. Governments have been, in practice, robbed of a 
considerable amount of their independence and sovereignty by the 
application of WTO rules.

Offending countries can be subjected to retaliation by other members. 
Retaliation takes the form of discriminatory action against that country to 
inflict an equivalent amount of damage.

For example, one country that has restricted the entry of, or imposed too a 
high tariff on clothing from another country, can face retaliatory 
penalties in that same area or in a completely different area of trade.

This right to retaliate in a different area of trade made GATT and now the 
WTO machine an extremely powerful weapon of enforcement, particularly 
against Third World countries.

For example, if a Third World country were to refuse entry to a US bank, it 
would not cripple the US economy or hurt the bank.

But the retaliatory imposition of a hefty tax on minerals or sugar entering 
the US could mean ruin for the people of a small struggling economy.

The WTO has become one of the most important and powerful international 
organisations along with the WB and the IMF.

While the WTO expects considerable transparency from governments, its own 
methods of working are shrouded in secrecy as the most powerful dominant 
countries negotiate deals and force these on to other member countries.

The negotiating delegations are not just made up of government officials 
and technical experts, but representatives from the transnational 
corporations whose interests the WTO serves.

Its agreements have had a profound and devastating effect on the poorer 
countries of the world and on many people in the industrialised countries 
as well.

TNCs drive WTO agenda

The need for GATT and more recently the WTO arose as a consequence of the 
huge expansion in trade around the world, the rapid growth of huge 
transnational corporations and advances in technology.

The transnational corporations (TNCs) that now dominate international 
trade, want to remove the various "barriers", that either inhibit their 
operations or cost them additional money and hence eat into their profits.

These "barriers" include tariffs; industry assistance and import quotas; 
environmental regulations; taxation of profits, restriction of capital 
flows and foreign investments; health and safety regulations; local content 
rules such as for media; and many other areas in which governments 
protected the health and safety of people, or assisted or protected the 
development of domestic industries and services.

At first GATT agreements focused on trade in goods, reflecting the rapid 
post-war expansion in international trade. In the last few decades the 
focus reflects the exponential growth in foreign investment.

The TNCs now demand that restrictions on foreign investment; capital flows; 
intellectual property rights (patents, licences etc); and trade related to 
the provision of services be lifted.

These changing needs and demands of the TNCs led to the introduction of the 
new items in the Uruguay Round in the 1990s and the push by the US and the 
EU for agreement on a new round at Doha.

But there is growing and deep-seated opposition to the direction the 
organisation is taking.

This was seen in the massive demonstrations in Seattle streets in November 
1999 by trade unionists, environmentalists, NGOs and many other 
organisations and individuals. Inside the conference the governments of the 
Third World countries also refused to bow to the demands of the TNCs and 
the governments of the industrialised countries. It was a combination of 
these two factors that led to its collapse.

Opposition by Third World countries this time is even greater and even 
better organised and co-ordinated, except that it will be much more 
difficult for demonstrators to get anywhere near the conference site.

* * *
Next week: The trade in intellectual property rights agreement (TRIPS) and its effect on people.

Back to index page