Emergency Committee For American Trade - Publications

World Trade Organization

The trade liberalization shaped by the World Trade Organization (WTO) and the General Agreements on Tariff and Trade (GATT) has been a major engine of global economic growth. Since the founding of the multilateral trading system, the world economy has grown six-fold, per capita income worldwide has tripled, and hundreds of millions of families around the globe have risen from poverty. The liberalization under the Uruguay Round Agreements alone is expected to produce a $230 billion increase in world GDP and a $745 billion increase in world trade by 2005. This means an additional annual $100 to $200 billion in purchasing power for consumers worldwide. Since the Uruguay Round, the WTO has produced agreements on information technology, financial services, and telecommunications, thereby opening up market opportunities in new areas of commerce that will produce even greater global economic growth.

For the United States, this global economic growth has helped the U.S. economy grow from $7 trillion in 1992 to over $9 trillion last year. U.S. unemployment and poverty levels remain at very low levels. U.S. exports have grown over 70 percent since 1992.

A strong multilateral trading system is essential to maintain the historic growth in the world economy that has occurred over the last half-century. It is also vital that China, the emerging market that will be a major source of growth in the twenty-first century, be brought into the WTO. Following the failure to launch a new round of negotiations as hoped at the 3rd WTO Ministerial in Seattle in 1999, the WTO has embarked on a process of achieving greater consensus on trade liberalization objectives and on addressing issues raised by developing countries and others that were a factor in preventing the launch of the round. As discussed in detail in Section 2, there is some hope that a round can be launched at the 4th WTO Ministerial in Doha, Qatar from November 9 to 13, 2001, although many of the same obstacles remain that prevented the launch of a round in Seattle.

WTO Framework

The WTO was created in 1995 by the Uruguay Round Agreements and is the primary multilateral institution governing the conduct of trade between member nations. It is the successor organization to the GATT, which was founded in 1947 under the Bretton Woods Agreement. It is based on the fundamental principles of non-discrimination and most-favored-nation treatment. The legal framework of the WTO encompasses:

the rules of the multilateral trading system under the original GATT, set out under GATT Articles I through XXVIII;
the agreements negotiated during successive GATT negotiations to which all WTO members must subscribe, including the General Agreement on Trade in Services (GATS), the Agreement on Trade Related Intellectual Property (TRIPs), and the Agreement on Trade-Related Investment Measures (TRIMs);
plurilateral agreements on government procurement, aircraft, meat, and dairy in which membership is voluntary; and
dispute settlement and trade policy review mechanisms.

The WTO Agreement is a "single-undertaking," under which member countries must adhere to the basic WTO rules and all agreements that have been negotiated under the GATT and the WTO.

The WTO is not a static institution; it has kept the trading system in step with technological development through the negotiation of agreements on information technology, telecommunications, financial services, electronic commerce and other initiatives. The WTO rules also have promoted global economic stability by requiring WTO member countries to maintain open markets. The willingness of the United States and other WTO members to resist protectionist pressures to close their markets during the Asian financial crisis laid the foundation for the financial recovery that is now underway.

The GATT/WTO has grown from 90 members in 1986 to 140 members in 2000, accounting for over 85 percent of world trade. An additional 31 countries are in the process of applying for WTO membership, including China, Russia, Taiwan, and Saudi Arabia. Since the early 1980s, WTO membership has grown increasingly diverse as developing countries now account for more than 80 percent of total WTO membership.

Although WTO dispute settlement is binding, compliance with WTO panel recommendations is voluntary. The WTO has no authority to force a member country to change its domestic laws or policies and, therefore, does not pose a threat to enforcement of U.S. health, safety, or environmental standards. In cases in which a WTO member chooses not to bring itself into conformity with a panel decision, the affected WTO member countries have the right to request compensation or to retaliate.

Despite some adverse decisions against the United States in the last year, it is important to remember that the binding dispute settlement process is the backbone of the WTO. While we may not agree with every WTO panel decision, overall the United States has been a major beneficiary of the WTO dispute settlement process, and has prevailed in nearly all of the WTO disputes that it has initiated.

To encourage ongoing liberalization, the WTO framework agreed to in 1994 established the so-called "built-in" agenda that sets out a timetable for the review of existing agreements and a schedule for new negotiations on agriculture and services. The built-in agenda is playing a very important role in maintaining the momentum for trade liberalization in the absence of a consensus on a broad new round of negotiations. The WTO agenda is also set through bi-annual ministerial meetings required under the WTO Agreement.

Major Issues

Despite the failure of the WTO to launch a new round of negotiations at the 3rd Ministerial in Seattle, the WTO built-in negotiations on agriculture and services were commenced in 2000. As discussed in Section 2, efforts continue in the WTO to reach a consensus among WTO Member countries on a framework for launching a broader round of negotiations, possibly in 2001 at the 4th Ministerial in Doha, Qatar. During 2000, WTO Director-General Moore also attempted to build greater support for a new round by addressing various concerns about the WTO, including developing and developed country concerns about implementation of existing agreements, enhanced market access for developing countries, institutional reform, and other issues.

Implementation of WTO Agreements

At the Seattle WTO Ministerial, major developing countries, such as Egypt, India, Indonesia, and Nigeria, demanded flexibility in the application of implementation deadlines for certain WTO agreements as a pre-condition to their support for further WTO liberalization. In particular, these countries asked that the moratorium on bringing certain cases against developing countries under the TRIPs agreement be extended, and that implementation deadlines under the TRIMs and Customs Valuation agreements also be extended. Developing countries also sought a review of developed countries’ implementation of their commitments under other agreements, such as the WTO Agreements on Textiles and Clothing, Agriculture, Antidumping, and Subsidies and Countervailing Measures. As part of an overall agreement on a new round agenda discussed during the Seattle Ministerial, the United States, the EU, and other developed countries considered granting developing countries a blanket three-year extension of implementation deadlines for the TRIMs, TRIPs, and Customs Valuation agreements. This proposal was dropped when WTO members were unable to reach an agreement on the ministerial declaration and the agenda for a new round.

In January 2000, eight developing countries asked the WTO General Council for a blanket waiver of the implementation deadlines for the TRIPs, TRIMs and Customs Valuation agreements. The eight countries are Argentina, China, Colombia, Malaysia, Mexico, Pakistan, the Philippines, and Romania. Most of the countries requesting the waiver want to preserve domestic content and other investment restrictions, as well as systems that fail to provide adequate protection of intellectual property rights. WTO Members agreed to review these and other implementation issues through a series of Special Sessions of the General Council in May, June, October and December. WTO Members also agreed to review requests for extension on a case-by-case basis and to provide technical assistance where needed. The United States refused, however, to any blanket moratorium on challenging countries’ failure to implement their commitments before the dispute settlement system.

In addition, Japan, Korea, Brazil, and a group of developing countries continue to propose reopening the antidumping agreement as a part of a new round of trade negotiations, in order to tighten antidumping standards. Specifically, developing countries want to raise the two percent "de minimis" and three percent "negligible" margin rules (no antidumping duties can be imposed if antidumping margins are below these levels). The Clinton Administration was willing to discuss specific implementation problems of WTO members, but it refused to any negotiation of the WTO antidumping rules, reflecting the strong opposition of the U.S. steel and textile industries and labor unions to any changes in these rules. This issue will likely be raised in 2001, particularly as the EU has joined with other countries in agreeing to reexamine antidumping and countervailing duty rules.

On December 15, 2000, WTO Director-General Moore indicated that "modest progress" had been made on addressing implementation concerns, but that work would continue on these issues throughout 2001. The December 15th General Council decision reflects that little substantive agreement has been reached to date on implementation issues.

The cost of implementing WTO agreements strains the resources of many developing countries. A 1999 World Bank study calculated that implementing the agreements on TRIPs, Customs Valuation, and on sanitary and phytosanitary measures could cost a developing country government as much as $130 million. The United States and other developed countries recognize the financial difficulties some nations may face in complying with WTO agreements, but they do not want lack of resources to become the pretext for a renegotiation of WTO agreements. As a result, the United States is supporting greater technical assistance to WTO member countries to assist in implementation of WTO agreements and pledged $650,000 to the WTO Global Trust Fund for Technical Assistance.

Full implementation of all of the WTO agreements is the cornerstone of a strong multilateral trading system. The United States should continue to insist that all WTO Members implement the WTO Agreements in a timely and comprehensive manner.

ECAT POSITION: Full implementation of WTO agreements is the cornerstone of the multilateral trading system and must remain a top priority on the WTO agenda. Developing country concerns regarding implementation should be addressed through increased technical assistance and not become the pretext for renegotiating existing WTO agreements. ECAT urges the Administration to oppose efforts to reopen the TRIPs, TRIMs, or other agreements or to delay full implementation of these agreements.

Market-Access Initiatives

In an effort to address concerns raised by developing countries during the Seattle Ministerial concerning the lack of sufficient attention to their issues and the closed nature of the WTO process, WTO Director-General Mike Moore has encouraged the United States and other developed WTO member countries to provide greater market access to the least-developed countries (LDCs). Together with institutional reform, these initiatives are viewed as essential to regaining developing country support for a new round of trade negotiations.

In 2000, the United States enacted legislation providing greater market access to countries in sub-Saharan Africa and the Caribbean Basin as part of the Trade and Development Act of 2000. While the benefits provided under these provisions were not as generous as some had hoped, this legislation (which is discussed in Section 9) represents a significant step forward in opening U.S. markets to developing countries.

As described in Section 3, the EU adopted in early 2001 the "Everything but Arms" initiative, which will provide substantially greater market access than previously provided to developing countries by eliminating tariffs and quotas.

ECAT POSITION: ECAT supports developed country efforts to expand market access opportunities for developing countries. In particular, ECAT supports efforts to implement fully the African Growth and Opportunity Act and the Caribbean Basin Trade Partnership Act and to expand the benefits provided under those and similar provisions.

WTO Institutional Reforms

Throughout 2000, Director-General Moore has consulted with WTO Member countries on how to change the WTO decision-making process to allow greater participation by a larger number of WTO member countries and on how to make the institution more transparent to non-governmental organizations (NGOs). The United States is also continuing to urge earlier release of WTO documents and greater public observation and input in the WTO dispute settlement process.

The WTO has held meetings with NGO representatives on labor and environment issues, as well as the ministerial agenda. Before a permanent process is created, however, the threshold question of the standing of NGOs groups must be addressed. Some NGO organizations have large memberships with elected representatives; others are small organizations that do not represent identifiable constituencies. Former Senate Finance Committee Chairman Roth proposed the creation of a Standing Committee of Parliamentarians from WTO member countries that could meet periodically and provide input to the WTO, which could provide an effective venue for raising NGO concerns.

ECAT POSITION: ECAT supports efforts to expand participation by WTO Members in the WTO process and to increase overall transparency, as well as transparency in the dispute settlement process.

WTO Accession of China and Other Countries

Another important area of WTO activity this year will be achieving progress on the accession of the 31 countries that have applied to join the WTO. Accession negotiations involve a review of a country’s trade regime and its consistency with WTO obligations. WTO applicants must agree to abide by WTO rules and enter into commercially-viable, market-access commitments on goods, services, and agriculture that are negotiated both bilaterally and multilaterally. The terms of a country’s accession are set out in a protocol and in the schedule of market-access concessions that is included in the protocol. The protocol is negotiated with the working party established to consider the country’s accession application. Once accession negotiations are completed, the working party issues a report that is sent along with the protocol to the WTO General Council. Accession applications are generally approved by consensus by the General Council (but require, at a minimum, a two-thirds vote).

Once accession negotiations are complete, the applicant country must be prepared to implement its WTO obligations and commitments. Each current WTO member country must decide whether to sign the country’s protocol of accession and extend WTO benefits to the new WTO member. WTO members may choose not to apply WTO benefits to a new member pursuant to Article 13 of the WTO.

Five countries formally joined the WTO in 2000: Albania, Croatia, Georgia, Jordan, and Oman. The WTO General Council also approved the protocol of accession of Lithuania in 2000; Lithuania must now ratify its protocol before formally acceding. The WTO Working Party on Moldova’s accession adopted its protocol in February 2001, which will be considered later this year by the WTO General Council.

As discussed in Section 2, the completion of China’s accession negotiations and its formal admission to the WTO are priorities for WTO members this year. It is vital to have China, the world’s largest emerging economy, subject to WTO rules and disciplines. The accession negotiations of Taiwan, Armenia, and Vanuatu are also expected to be completed in 2001. Accession negotiations with Russia, Saudi Arabia and Vietnam will continue, but have not made significant progress in the last year.

ECAT POSITION: ECAT supports the accession in 2001 of China and other countries that agree to commit to WTO principles and agreements.

Status of WTO Committees and Working Parties

Rules of Origin

The WTO began work on the development of harmonized global rules of origin in 1995, with the deadline of completing the work in three years. The new harmonized system would be based on the principle of substantial transformation, under which a product is considered to originate from the country in which substantial transformation takes place. In June 1999, the Technical Committee on Rules of Origin at the World Customs Organization (WCO), which is assisting the WTO in this effort, forwarded to the WTO Committee on Rules of Origin several hundred product-specific issues that could not be resolved on a technical basis.

Progress in the WTO Committee on Rules of Origin has been slow, and the deadline for completion of the harmonized system has been extended several times. During 2000, the Committee met eight times and conducted several informal consultations. The Committee developed a sector-by-sector work program at the end of 2000 and the General Council set a new deadline of 2001 for completion of this work. There remain several outstanding issues that must be resolved before this project can be completed, including the overall structure and operation of the rules, as well as particular product-specific and sectoral issues.

Trade and Competition Policy

The Working Group on Trade and Competition Policy was established under the Singapore Ministerial Declaration in 1996. It studies issues related to the interaction between trade and competition policy in order to determine if any of the issues should be raised in the WTO. The creation of the working group did not reflect a decision to initiate WTO negotiations to establish rules on competition. It was established as a compromise between the EU proposal to negotiate an agreement on competition policy within the WTO and the view of the United States and other WTO member countries that competition issues are not ripe for negotiation within the WTO. Some in the United States have been concerned that WTO discussions on competition policy would be used by Japan, Canada, and other WTO countries to debate antidumping issues.

The Working Group held three meetings in 2000 and continued to focus on three primary issues: (1) how basic trade principles such as national treatment can be reflected in competition policy; (2) ways to facilitate international cooperation on competition policy; and (3) how competition policy can promote trade.

During these meetings, the EU, Japan, Canada and other members continued to press for a mandate to begin negotiation of a multilateral competition agreement. Members agreed to continue work in this Group in 2001.

Trade and Investment

The WTO Working Group on Trade and Investment was established pursuant to the 1996 Singapore Ministerial Declaration to examine the relationship between trade and investment. The Working Group discussions have generated a number of proposals for the possible scope of investment discussions including: (1) that an agreement on investment only should cover foreign direct investment; (2) that an agreement on investment must respect the ability of host governments to regulate the activity of investors; and (3) that WTO settlement rules should apply but should not include investor-state dispute settlement provisions.

The WTO Working Group on Investment met three times in 2000 and reviewed three broad issues: (1) the implications of trade and investment for development and economic growth; (2) economic relationship between trade and investment, focusing, in particular, on investment incentives, and (3) a stocktaking of existing international rules and activities regarding investment. This work will continue in 2001.

The EU has continued to press for investment negotiations as part of the next WTO round. The collapse of the negotiations on a Multilateral Agreement on Investment (MAI) within the OECD refueled the EU’s efforts in this area. The EU insists that a WTO agreement on investment would not look like the MAI and, at this stage, would only consist of a statement of general rules such as non-discrimination. In a draft European Commission paper circulated in December 2000, the EC even suggested that an investment agreement could be a plurilateral agreement that all WTO Members need not sign. While the United States opposes negotiations on investment in the WTO, it offered a compromise proposal in Seattle under which discussions on possible rules for investment would be held outside of the framework of a new round under a "forward work program." There is considerable opposition to a WTO agreement on investment within developing countries. India and Pakistan have said that discussions within the working group on trade and investment should be completed before the WTO initiates any negotiations on investment.

Trade and Environment

The WTO Committee on Trade and Environment (CTE) was established in 1995. The committee’s mandate is to make recommendations on what changes should be made to WTO rules to encourage a positive interaction between trade and environment measures and to avoid protectionism. Since its formation, one of the main areas of the CTE’s focus has been the relationship between the WTO and trade measures applied pursuant to multilateral environmental agreements (MEAs). Discussions in the CTE have supported pursuing environmental problems through cooperative, multilateral action under MEAs. There is no consensus within the CTE on the use of trade sanctions in MEAs. There is agreement within the CTE that in the event a dispute arises between WTO members that are also signatories to a MEA, they should first try to resolve the dispute under the provisions of the MEA.

The CTE has discussed the call for greater transparency in the WTO’s relationship with "civil society," the term used by the United States to refer to labor, environment, and other non-governmental organizations. To this end, the CTE has held a number of sessions with representatives of civil society on trade and environment issues. In March 1999, the CTE sponsored the High-Level Symposium on Trade and Environment, which was attended by 130 NGOs.

The CTE has stated that trade-related environmental measures should not be required to meet more burdensome transparency requirements than other measures that affect trade. The CTE also has stated that no modifications are needed in WTO rules to ensure adequate transparency for trade-related environmental measures. The CTE established a WTO Environmental Database (EDB) available to WTO members, consisting of all trade-related environmental measures notified to the CTE. With regard to eco-labeling requirements, the CTE has said that such requirements must be non-discriminatory and that the processes for developing and adopting such requirements should be transparent. The CTE is also discussing services and the environment.

The CTE held three meetings in 2000, focusing on market-access issues and the relationship between the provisions of the multilateral trading and environmental systems (including multilateral environmental agreements and dispute settlement provisions). The WTO Secretariat also updated the EDB with all environment-related notifications to the WTO. As well, the Secretariat organized a second series of regional seminars on trade and environment for government officials from certain developing and least-developed countries to raise awareness on the linkages between trade, environment, and sustainable development and to enhance the dialogue between policymakers from ministries of both trade and environment in developing and least-developed WTO Member Governments.

Treatment of Labor Issues in the WTO

The 1996 Singapore Ministerial Declaration did not establish a WTO working party on trade and labor. Instead, the declaration: (1) renewed the WTO’s commitment to the observance of internationally-recognized core labor standards, (2) recognized the International Labor Organization (ILO) as the appropriate forum to deal with labor issues, and (3) endorsed the continued collaboration between the WTO and the ILO to support core labor rights.

Since the Singapore Ministerial, the Administration has maintained its efforts to broaden support for core labor rights within the ILO and the WTO. Core labor rights include freedom of association, collective bargaining, non-discrimination, and prohibition of forced labor and abusive child labor. As discussed in Section 2, the United States supported the ILO Declaration on Fundamental Rights and Principles at Work adopted in 1998, recognizing core labor rights and establishing a mechanism to monitor compliance. The United States increased funding for the ILO to improve its monitoring and enforcement capabilities. The United States also has sought to build a consensus for greater action against child labor and worked for the adoption of the ILO Convention against the worst forms of child labor which the United States signed and ratified last year.

At the Seattle Ministerial, the United States proposed that the WTO establish a working party to examine the relationship between market-opening measures and the observance of internationally-recognized workers rights, as required by the Uruguay Round Agreements Act. Developing countries led by India, Egypt, and Brazil, adamantly opposed the U.S. proposal on the grounds that it would open the door to protectionist measures and trade sanctions. The EU offered a compromise proposal under which a special standing committee would be created outside the WTO to study the ways in which global trade affects workers around the world. The committee would be comprised of representatives from the WTO, the ILO, the World Bank, the IMF, and other multilateral institutions. Angered by President Clinton’s statements in a news article that appeared in Seattle during the ministerial meetings, developing countries refused to consider any compromise on the labor issue.

ECAT POSITION: ECAT supports efforts to make the WTO more transparent and to conclude the rules of origin harmonization in a timely manner. On issues of labor and environment, ECAT believes that these issues are, for the most part, best addressed in alternative fora and through alternative policy approaches. In those cases, however, where there is complementarity between these issues and WTO objectives, efforts should be made to address these objectives jointly and in a cooperative manner.

Dispute Settlement

While the United States may not agree with all WTO panel decisions, the WTO dispute settlement system on balance has been an effective mechanism in enforcing U.S. rights. The United States has made aggressive use of the dispute settlement process, bringing more complaints than any other WTO member. It has prevailed in the majority of the cases that it has filed and successfully defended America’s ability to enforce its rights under international trade agreements under Section 301 of the Trade Act of 1974 from a challenge brought by the EU.

Since the establishment of the WTO, 226 complaints have been filed involving 176 distinct matters. The United States has brought complaints involving 57 distinct matters, of which the United States has prevailed in litigation in 15 cases, has resolved 13 without litigation, has lost 3, and remains in consultations or in the panel process with an additional 24. Complaints have been filed against the United States involving 49 distinct matters, of which the United States has prevailed in one litigated case, has lost 11 in litigation, has resolved 11 without litigation and is in the appellate, panel or consultation phase with an additional 17 cases.

The WTO dispute settlement system is currently being tested in several disputes between United States and the EU on bananas, hormone-treated beef, and the U.S. Foreign Sales Corporation (FSC) provisions, which are discussed in more depth in Sections 3 and 11. The EU’s reluctance to bring itself into compliance with the WTO panel decisions on bananas and hormone-treated beef has raised serious concerns in the United States about the ability of the dispute settlement process to enforce compliance with WTO rules. The conflict over these issues is likely to heighten in 2001. In particular, despite an earlier agreement in the FSC case not to seek immediate retaliation, the EU indicated in early 2001 that it would request authorization from the WTO to impose $4 billion in retaliatory duties immediately if the Bush Administration implements the carousel provisions of the Trade and Development Act of 2000 (which require the periodic revision of retaliation lists to provide maximum pressure on the EU). Bush Administration officials have indicated that they may implement these provisions in the spring if the EU implements the first-come, first-served marketing proposal to replace its existing banana import regime, which the United States believes is still inconsistent with the EU’s obligations. The threat of retaliation subsided somewhat following a March 9th announcement by U.S. Trade Representative Robert Zoellick and EU Trade Commissioner Pascal Lamy that they would conduct further discussions on the banana dispute. It is critical that the United States and EU work to address these differences in mutually agreeable manner and find solutions that liberalize trade and ensure that the competitiveness of U.S. companies is not undermined.

WTO Dispute Settlement Reform

Under the WTO built-in agenda, discussions on reform of the WTO dispute settlement process that began in 1998 were to have been completed in July 1999, but no agreement was reached due to lack of consensus. Efforts to reach a final agreement during the Seattle Ministerial were also unsuccessful.

The reforms under consideration include shortening the time period for pre-panel consultations, allowing panels to be established on first request, establishing a "compliance panel" to handle disagreements over implementation of panel reports, and delaying retaliation until after a compliance review has been completed. The United States has indicated its willingness to accept these reforms, but wants to include additional transparency measures, such as permitting early publication of non-confidential panel submissions and final panel rulings, opening panel proceedings to the public, and allowing NGOs to file "friends of the court" briefs in dispute settlement cases. The United States has argued that WTO members should have the right to apply a "carousel" retaliation approach, allowing them to change periodically retaliation targets. The EU and developing countries oppose the U.S. carousel retaliation position. Developing countries also oppose the proposed accelerated schedule for dispute settlement proceedings and the U.S. proposals for greater transparency. The EU also would not agree to open panel proceedings to the public.

Discussions of dispute settlement reforms continued in 2000 as part of the confidence-building effort being led by Director-General Moore, the United States, and the EU.

ECAT POSITION: ECAT believes that the dispute settlement mechanism has been effective in resolving many disputes, but has had difficulty in addressing a few highly political disputes, particularly those between the United States and EU. ECAT supports efforts by the United States and EU to address these issues quickly and in a trade-liberalizing manner. ECAT also supports efforts to reform the WTO dispute settlement system to make it more transparent and make it function more effectively.